NEW DELHI: Natural gas may become the first of the five petroleum products to be included in the Goods and Service Tax (GST) regime ahead of an earlier agreed schedule, as the Centre and states come to a common ground on universal application of the new indirect tax system.
Sources said natural gas may be included under a three-tier GST structure where rates would vary depending on the usage. So, while piped natural gas (PNG) for homes may be kept at a lower rate of 5 per cent, commercial piped gas may attract the median 18 per cent GST and automobile fuel CNG may be kept in the highest bracket of 28 per cent.
“The GST Council could consider bringing natural gas in the GST net ahead of other four petroleum products at its forthcoming meeting. Inclusion of gas would not pose a challenge for the Council as it is largely an industrial product where a switchover to new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover,” said an official source privy to the development.
GST revenue has picked up momentum and crossed Rs.95,610 crore in June, giving confidence to the Centre that revenue fall from petroleum sector by including it under GST would have little financial impact now.
As of now, five petroleum products — petroleum crude, motor spirit, air turbine fuel, high speed diesel and natural gas — are included in GST, but is governed under existing Central Excise Act as well as State VAT and Central Sales Tax Act, till GST Council recommends the same for coverage under GST.
The changes, with proposed tax rate, will be a big boon for PNG users as their price of the fuel will drop by a big margin. The effective tax rate on the CNG and PNG in India currently is 13-40 per cent as a proportion of selling price. Even commercial PNG users could get some tax relief as VAT rates in few states are much higher than 18 per cent rate under GST.
The impact CNG users will be neutral but the government wants to keep automobile fuel in the highest GST bracket in line with its thinking of keeping other products, as and when they are included, also in this bracket.
The ministry of petroleum and natural gas has been pushing for inclusion of petroleum products in the indirect tax system for some time now as it feels that this would bring down volatility in its retail pricing that is constantly under pressure on rising global oil prices.
Gas is largely an industrial product where a switchover to new taxation would not be difficult but such changes would benefit state-run oil companies such as Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
Oil companies have estimated additional tax burden to the tune of Rs.25,000 on them if their products are not included in GST. This is largely on account of denial of taxes (GST) paid on inputs and services on sale of products by the oil and gas industry that is not included under the new tax system.
Though five petroleum products are out of GST, oil products such as cooking gas, kerosene and naphtha are included in the new regime. This will allow oil companies to get a set-off against taxes already paid. But the dual tax structure would create a messy situation for companies, as they would need to comply with both the old and new tax regimes. Moreover, tax credits won’t be transferable between the two systems.
Source- Financial Chronicle.