The issue of including natural gas in the goods and services tax (GST) could be taken up at the next meeting of the GST Council because of the growing demand from the industry. The government, too, is keen to increase the contribution of the clean fuel in the energy mix of the country.
“There is a growing consensus that natural gas should be included in the GST as this would help the industry to get input credit and help increase the use of clean fuel in the country,” officials said.
Indications are that the natural gas issue could be taken up by the GST Council at its next meeting.
Pointing to the need to include natural gas within the GST, the officials said other alternatives to natural gas such as naphtha, fuel oil and LPG were already part of the new tax system.
Oil minister Dharmendra Pradhan made a strong case for natural gas, saying if polluting coal can be included, the environment friendly-fuel should get a place in the new regime. “Coal has been included and levied with 5 per cent tax but gas is outside the GST, how fair is that,” he said.
In a letter to finance minister Arun Jaitley, industry association Ficci has said keeping out natural gas is causing hardships and having an adverse impact on the producers as it is increasing their costs.
At present, gas sales, including CNG and piped gas supplies, attract lower VAT, ranging from 5 per cent to 12 per cent and the inclusion of natural gas should not result in any large revenue loss.
“This will be in keeping with the overall policy of the government to shift to cleaner fuels and increase the use of gas from 5 per cent in the energy basket to at least 15 per cent by 2022,” the letter said.
The hybrid tax system in the petroleum sector – kerosene, LPG and naphtha are under the GST while other products are not – increases the cost of production for both upstream and downstream companies.
While various goods and services procured by the oil and gas industry are subject to the GST, the sale and supply of oil, gas and petroleum products continue to attract earlier taxes such as excise duty and value added tax.
Unlike other industries which can take credit for any tax paid to expand the business, no credits on input GST will be available to the oil and gas industry leading to a huge additional indirect tax burden.
According to official estimates, the revenue from sales tax and value-added tax from natural gas to states was about Rs 5,674 crore in 2015-16, which is seen as being much less than the revenue to states from other petroleum products.
Further, 81 per cent of this total revenue (from natural gas) – about Rs 4,620 crore – accrues to three states: Gujarat, Maharashtra and Uttar Pradesh.
If natural gas is included, the GST paid on inputs and services used to produce natural gas can be set off against taxes on its sale. This would cut the losses to the industry by one-fifth.
The move will benefit PSU giants such as Oil and Natural Gas Corporation (ONGC) as well as gas retailers such as Indraprastha Gas.