With Andhra under NDA governance, chances of bringing natural gas under GST brightens

New Delhi [India], June 12 : After taking charge of Petroleum Ministry for the second term, minister Hardeep Singh Puri said he will work to bring natural gas under Goods and Services Tax (GST). Currently, all petroleum products, alcohol and tobacco are out of the ambit of GST.
Natural gas too being a petroleum product is outside the ambit of GST, and taxed under the old regime taxes like central excise duty, state VAT and central sales tax.
Experts believe taxation on natural gas is key to increasing the use of natural gas in the economy. The government has set a target of raising the share of natural gas in the country's primary energy basket to 15 per cent by 2030, up from 6.7 per cent now.
The four key states namely, Gujarat, Rajasthan, Uttar Pradesh and Andhra Pradesh, that could influence the decision of the GST council are now under the governance of either BJP or NDA. Above mentioned four states are the largest beneficiaries of VAT on natural gas. Experts believe chances of a breakthrough in the GST council can now be achieved, as Andhra Pradesh has also come under the ruling of NDA, its ally TDP leader Chandrababu Naidu took oath as Chief Minister of the state on Wednesday
According to a recent report by Jefferies, the natural gas cost could come down by USD 0.8-0.9/mmbtu (a unit to measure energy value) if it is brought under the GST ambit.
"The total VAT on Natural Gas in FY23 was Rs 200 bn. Assuming this is subsumed under GST, this could lower Natural Gas cost by USD 0.8-0.9/mmbtu, improving its competitiveness to naphtha and fuel oil. We see gas companies passing on most of these benefits to the consumer, in line with the government's stated objective on GST," says the Jefferies report.
The Jefferies report further says that in line with the stated objective of GST, gas companies are expected to pass on the benefits to consumers thereby lowering the cost of natural gas in the domestic market.
The improved competitiveness and lower cost of natural gas will drive faster adoption and help government to meet the target of 15 per cent natural gas share in the full energy basket by 2030.
Gas companies like GAIL will also benefit from faster volume growth and improved LPG profitability. Faster adoption of natural gas will also aid transmission and trading volume growth over medium term.
"The 6 per cent VAT on Natural Gas sold in Morbi, if subsumed under GST, would improve Gujarat Gas competitiveness to propane by Rs 2.5/kg at current prices," says the Jefferies report
Another government company Petronet LNG could also benefit, if GAIL passes on the USD 0.8-0.9/mmbtu tax savings to drive volume growth of PLNG's LNG volumes.
CNG companies too will see limited benefits, VAT on CNG in Delhi/Mumbai/Gujarat is 0 per cent/3 per cent/5 per cent. If benefits are passed to consumers, this should increase the discount to petrol/diesel and marginally aid volume growth.