The government should bring natural gas under the Goods and Services Tax (GST) regime to accelerate a gas-based economy and raising the share of the environment-friendly fuel in India’s energy basket, the Federation of Indian Petroleum Industry (FIPI) industry said.
Natural gas is currently outside the ambit of GST, and existing legacy taxes — central excise duty, state VAT, central sales tax — continue to be applicable on the fuel. “Non-inclusion of natural gas under GST regime is having adverse impact on its prices due to stranding of taxes in the hands of gas producers/suppliers and is also impacting natural gas-based industries due to stranding of legacy taxes paid on it,” the Federation of Indian Petroleum Industry (FIPI) said.
In a pre-Budget memorandum to the Finance Ministry, FIPI, which boasts of members from across the oil and gas spectrum, said the value-added tax (VAT) rate on natural gas is very high in different states — 14.5 per cent in Uttar Pradesh and Andhra Pradesh, 15 per cent in Gujarat, 14 per cent in Madhya Pradesh.
“Since gas-based industries do not get the benefit of tax credit of VAT paid on purchases of natural gas, it is resulting in an increase in cost of production of such industrial consumers and would have an inflationary effect on the economy,” it said.
Inclusion of natural gas under the GST ambit will have a positive impact on gas-based industries, promote usage of the fuel and avoid stranding of taxes, it said.
India has set a target of raising share of natural gas in the country’s primary energy basket to 15 per cent by 2030 from 6.2 per cent currently. Greater use of natural gas will cut fuel cost as well as bring down carbon emissions, helping the nation meet its COP-21 commitments.
FIPI has also sought rationalization of GST rate on service of transportation of natural gas through pipeline. Presently, GST on service of ‘transportation of natural gas through pipeline’ is applicable at rates ranging from 5 to 12 per cent. Natural gas is a much cleaner source of energy than other alternatives available and is primarily used in priority sectors like power, CNG and fertilizer.