🚨 GST on Natural Gas: Will December Be the Game-Changer?

What’s Brewing for Natural Gas Under GST?

The December 21st GST Council meeting in Jaisalmer, Rajasthan, may finally set the stage for levying GST on natural gas. This significant move, pending for years, could bring natural gas under a unified tax regime, replacing the current Central Excise Duty and VAT system. While it has been a subject of debate, the upcoming discussions might pave the way for a landmark decision in India’s tax landscape.

Natural gas, although already listed under GST, awaits a final decision on the implementation date. Until then, it continues to operate under the old tax regime. The inclusion of natural gas under GST aims to streamline taxation, reduce prices, and create uniformity, but the implications on state and central revenues make it a complex issue.

Current Taxation on Natural Gas

Under the existing framework:

• Central Excise Duty:
  • Gaseous natural gas: NIL
  • Compressed natural gas (CNG): 14%
• VAT/Sales Tax: Varies significantly across states, from 3% in Maharashtra to 15% in Gujarat.

For other petroleum products, such as petrol and diesel, the tax structure includes fixed excise duties and varying VAT rates ranging between 1% and 35.2%, depending on the state.

Challenges in Transitioning to GST

1. Revenue Dependency

The primary hurdle in bringing natural gas and other petroleum products under GST is the revenue impact.

• In the first half of FY 2024-25, 28 states and 8 union territories together collected over ₹1.43 lakh crore through VAT/Sales Tax on petroleum products.
• The Centre generated ₹1.22 lakh crore from central excise duty.

This high dependency on petroleum taxes complicates consensus-building among states and the Centre.

2. Revenue Neutral Rate (RNR)

Petroleum products require a rate exceeding the GST cap of 50% (28% GST + 22% cess) to maintain current revenue levels. However, natural gas offers a less challenging scenario, as its current combined tax rates are below 50%.

Potential Benefits of GST on Natural Gas

1. Lower Prices:
   Unified taxation could lower end-user costs by eliminating cascading taxes.
2. Ease of Doing Business:
   Simplified compliance for industries reliant on natural gas, including power, fertilizers, and transport.
3. Improved Investment Climate:
   Uniformity in taxation may attract global investors to India’s energy sector.
4. Revenue Sharing:
   Transparent revenue-sharing mechanisms between the Centre and states.

Past GST Council Decisions on Petroleum Products

The inclusion of petroleum products under GST has been debated since the 45th GST Council meeting in September 2021. However, due to the massive revenue implications, the matter was deferred. Natural gas might act as a test case for gradually transitioning other petroleum products into the GST framework.

What’s Next?

If the GST Council decides to roll out GST on natural gas, it could set a precedent for other petroleum products like petrol and diesel. However, the transition requires a fine balance between revenue protection and tax reform. The December 21st meeting could mark a turning point, making natural gas a trailblazer in India’s energy taxation.

Natural gas under GST could simplify taxation, reduce prices, and boost industries, but overcoming the revenue challenge remains critical. Will the December GST Council meeting finally make history? Stay tuned to see if this long-awaited reform becomes a reality.