Upcoming 43rd Council meeting to deliberate including Natural Gas under GST

The GST Council may potentially consider levying the Goods and Services Tax (GST) on natural gas in its upcoming 43rd GST Council meeting on 28th May 2021. 

Natural gas might also be included in a three-tier GST scheme, with taxation shifting depending upon consumption, according to sources in the IANS reports. As a result, residential Piped Natural Gas (PNG) may be taxed at a lower rate of 5%. Commercial Piped Natural Gas (CPNG) may be taxed at the median rate of 18%. Automotive fuel CNG may be taxed at the highest rate of 28%.

The Council has decided to put five petroleum goods under GST through an in-principle call. Five petroleum products include natural gas, Aviation Turbine Fuel (ATF), crude oil, diesel and petrol. However, the Council has deferred their actual inclusion under this indirect tax because states fear a significant loss in income. However, the government is reportedly considering bringing natural gas under the GST regime as a first step. Bringing the entire oil and gas sector under GST would be tough.

Given the high state taxes on natural gas, BofA securities believe that placing natural gas under the GST might cut gas prices and increase adoption, especially among industrial users.

Moreover, in April 2021, one of India’s most significant oil explorers, Oil and Natural Gas Corporation Ltd (ONGC), stated that specific structural difficulties could only be evaluated once the industry is included under GST. Since oil and natural gas are not subject to the GST, operators have no set-offs to state value-added taxes.

Using the GST and natural gas pricing example, the company further said it had been aggressively pursuing its deep-water projects on the East Coast and a few shallow-water projects on the West Coast, despite the uneconomical gas prices.

Prime Minister Narendra Modi earlier said the government is “committed to bringing natural gas under the GST regime”. Tax uniformity would lower the cost of natural gas and expand its use across industries. He made this statement while laying the foundation stone for oil and gas projects in Tamil Nadu on 17th February 2021.

On the flipside, Kerala FM KN Balagopal, who has newly assumed office, said on 20th May 2021, Thursday that the state will feel the pinch if petroleum and liquor be brought under GST. If petroleum and liquor are brought under GST, he believes the state’s economy will be severely stretched.

Natural gas in its gaseous state is currently exempt from central excise. However, compressed natural gas is subject to an 11% levy. The value-added tax (VAT) on natural gas, on the other hand, varies from state to state, ranging from 6% to 24.5%.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in