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Homechevron_rightBusinesschevron_rightCentre-States likely...

Centre-States likely to take up induction of natural gas into GST

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Centre-States likely to take up induction of natural gas into GST
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New Delhi: After the disruption caused by the second wave of the Covid pandemic, the Centre is likely to discuss with the states regarding the inclusion of petroleum products in the new indirect tax fold with the recovery of GST revenue.

Based on the proposal of the Ministry of Petroleum, it is said that the GST Council may consider the issue of bringing natural gas under the Goods and Services Tax (GST) regime before bringing in the entire oil and gas sector under it.

The 45th GST Council meeting will be held at Lucknow on September 17. While council members will discuss a number of unresolved issues including state compensation, revising GST rates on Covid essentials, and the inverted duty structure, the center will also take up the early inclusion of gas in the new tax rate.

Due to the outbreak of Covid-19, the revenue position seemed difficult. States were reluctant to bring high-income petroleum products under GST. But as GST collection has improved significantly this year, remaining above the Rs 1 lakh crore psychological-mark in most months of FY22, the Center hopes that this will help in the plan to develop a gas-based economy in the country including on oil, gas and tax reform.

Though it is largely an industrial product, the inclusion of gas will not be a challenge to the GST Council, where switching to the new tax will be uncomplicated . In case of this switchover, the revenue impact on the states shall be low. "States are in a fairly better position now with GST revenue hitting over Rs 1 lakh crore-mark for the past few months and Centre has also improved their liquidity position through additional borrowing schemes. This should make phased inclusion of petroleum products under GST easier for the council," said an official source in the oil ministry.

The imposition of GST on public sector oil companies like ONGC, IOCL, BPCL and HPCL will save the tax burden of Rs 25,000 crore. GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore. They will also receive credit for taxes paid on inputs and services. Tax credits cannot be transferred between two different tax systems. The report, submitted to the Ministry of Commerce by the Steering Committee for Advancing Local Value-Add and Exports (SCALE) chaired by Mahindra & Mahindra MD & CEO Pawan Goenka, also seeks to give input tax credit to make the price of natural gas more competitive. This may happen if it is included in the GST.

According to sources, the Council could consider a three-layered GST structure for gas where residential piped natural gas (PNG) is taxed at a lower rate of 5 per cent, commercial piped natural gas could be taxed at a median rate of 18 per cent and car fuel CNG could be taxed at a maximum rate of 28 per cent. Anyway, no such proposal has been prepared yet, and it can only be tabled after reaching an agreement on the inclusion of gas in GST. Sales of gas, including CNG and piped gas supplies, receive up to 5-12 percent of VAT.

The government had decided to exclude five petroleum products, including crude oil, petrol, diesel, ATF and natural gas, as part of a consensus with the states at the start of GST, from the list of items kept in the GST, but the new regime included products such as cooking gas, kerosene and naphtha.

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TAGS:Goods and services tax Natural gas 
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