Petroleum ministry recommends GST on natural gas

However, it has not yet been decided whether it will be part of the agenda of the GST Council’s next meeting scheduled in December, the official said on the condition of anonymity.

The petroleum ministry favours including natural gas in GST as it will make the taxation of the product more efficient, benefitting user industries like fertilizers and steel. 

Since natural gas is currently taxed under the regime of central excise duty and state-level value-added tax (VAT), businesses producing and using it are subject to two different taxation streams, as they have to pay GST on all other goods and services used in their operations. This makes the tax regime complex and breaks the chain of input tax credits for businesses.

Long-standing demand

The inclusion of natural gas, crude oil, petrol, diesel, and aviation turbine fuel (ATF) in GST has been a long-standing demand from the industry as well as from the petroleum ministry. However, state governments have to agree to this proposal for it to get the GST Council’s approval. 

The finance ministry typically refers indirect tax recommendations other than customs duty to the Council, which has different panels of central and state officials who assess legal and tax rate-related aspects. The political leadership makes decisions based on proposals from these committees. 

Including natural gas in GST could set the ball rolling for the inclusion of four other commodities, as it will set the template for this difficult-to-implement reform. 

The GST Council is expected to meet in Jaisalmer on 20 December to consider tax rate cuts on life and health insurance products and to discuss GST rate rationalization.

Queries emailed to the GST Council and to the finance and petroleum ministries on Thursday seeking comments remained unanswered at the time of publishing this story.