The Centre-states might discuss the inclusion of natural gas in the GST fold early

 The Centre expects to engage with states in order to include petroleum products under the new indirect taxes, as GST revenue collections are recovering from the disruptions caused the second wave Covid pandemic.

According to sources, the Centre could discuss with the GST Council the possibility of bringing natural gas under Goods and Service Tax (GST) before the whole oil and gas industry is brought under it.

The 45th GST Council meeting will be held at Lucknow on September 17, 2021. While the members of the council will be discussing several issues, including states compensation, revisions to GST rates on Covid essentials and inverted duty structure; the Centre will likely also take up the case that gas should be included into the new taxation fold.

States have been reluctant to bring high-revenue generating petroleum products to the GST fold, as their revenue situation remains tightened due to Covid-19. The Centre believes it is the right moment to push for tax reforms to the oil and gas sector, as well as the inclusion of gas in the plan to develop a country-based economy.

The GST Council would not have to worry about gas inclusion, as it is an industrial product that can be switched over to the new taxation easily. This switchover will also have a low revenue impact on the states.

"States are now in a much better place with GST revenue exceeding Rs 1 lakh crore-mark over the past few months. The Centre has also increased their liquidity position via additional borrowing schemes. According to an official source from the oil ministry, this should make it easier for the council to include petroleum products under GST.

The GST levy on natural gases would allow state-run oil companies like ONGC and IOCL, BPCL, BPCL, and HPCL to reduce their tax burden by Rs 25,000 crore. They would also get credit for taxes they have paid for inputs or services. Tax credits cannot be transferred between tax systems.

In its report to the commerce ministry, the Steering Committee for Advancing Local Value Add and Exports (SCALE), chaired Mahindra & Mahindra MD & Chief Executive Pawan Goenka also argued for natural gas prices to be more competitive by providing an input tax credit. It could be included in GST.

Sources suggest that Council might consider a three-layered GST structure. Residential piped natural gases (PNG), commercial piped naturalgas (CPNG), and car fuel CNG would be subject to a maximum tax of 28%. This proposal is not yet in place and could be presented after agreement has been reached on gas inclusion under GST.

Sales of gas, including CNG, and piped supplies, attract VAT from 5-12 percent.

In an effort to reach consensus with states regarding the launch of GST, the government decided to exclude five petroleum products, such as crude oil, petrol and diesel, ATF, natural gas and ATF, from the list of GST items. However, it included cooking gas and naphtha under the new regime.