Proposal to Include Natural Gas in GST
The Union Finance Ministry is reviewing a proposal from the Petroleum Ministry to bring natural gas under the Goods and Services Tax (GST). The proposal will be discussed during the GST Council meeting in Jaisalmer on December 21, 2024. Currently, natural gas is subject to a multi-tax system with central excise duty and state-level Value Added Tax (VAT), leading to complications in tax compliance and denial of full input tax credit.
Challenges with Current Tax Structure
Natural gas faces varying VAT rates across states, ranging from 3% in Maharashtra to 15% in Gujarat. This fragmented system impacts industries using gas as feedstock or fuel, including fertilisers and petrochemical crackers, which produce olefins critical for several downstream industries.
Benefits of GST Inclusion
Experts believe that GST inclusion will streamline taxation, lower operational costs, and enable full input tax credit for businesses. If cost reductions are passed on, consumers will benefit too. Companies like ONGC, Reliance, and city gas distributors such as Indraprastha Gas and Gujarat Gas are expected to gain significantly. However, states heavily reliant on VAT revenues from gas may resist the change, though many are ruled by the NDA, increasing the likelihood of consensus.
Windfall Tax Review
Separately, the government is considering scrapping the windfall tax on crude oil, initially imposed in 2022 after global crude prices surged to $135/barrel due to the Russia-Ukraine conflict. As crude prices declined, the cess was reduced to zero in September 2024. Experts argue that the tax is now redundant given the stabilisation of global crude prices.
