The stranded gas-based power plants in the country could get some relief if natural gas is brought under the GST, a parliamentary panel said.
“The committee feels that natural gas being a cleaner fuel should not be placed at a disadvantageous position vis-a-vis other sources of energy like coal,” the parliamentary standing committee on energy in its report submitted to Parliament on Friday said.
Coal is under the GST with a 5 per cent tax, while natural gas is outside the GST. The committee, therefore, recommended that “natural gas should be brought under the GST, so that the taxes get rationalised and gas becomes cheaper and affordable,” the report said.
Petroleum products such as kerosene, naphtha and LPG are under the ambit of the GST even as the government has kept five more fuel items — crude oil, natural gas, aviation fuel, diesel and petrol — outside the GST.
Abhishek Jain, tax partner, EY India, said, the non-inclusion of natural gas in the GST “is leading to a situation where the VAT paid on procurement of natural gas were not available as credit which will lead to increase in cost of production, rendering medium and small industries economically unviable and uncompetitive.
“End-users could potentially explore importing the desired products at a better and competitive value compared with domestically sourced goods which would be loaded with the increased cost.”
Oil minister Dharmendra Pradhan had made a strong case for the inclusion of natural gas in the GST regime, stating if polluting coal can be included, the environment-friendly fuel certainly deserves a place in the new regime. “Coal has been included and levied with 5 per cent tax but gas is outside GST, how fair is that,” he said.
If natural gas is included, the GST paid on inputs and services used for producing natural gas can be set off against taxes on its sale. This would cut the losses to the industry by one-fifth. The move will benefit companies such as ONGC as well as gas retailers such as IGL.
The parliamentary panel said any move by the government to introduce free market pricing of natural gas would have an adverse impact on the power sector.