Natural gas taxation is still fragmented, with the national government levying excise duty and each state imposing VAT, even though it is constitutionally covered by the GST.
In India, natural gas is currently exempt from the goods and services tax. Even though natural gas is constitutionally covered by the GST, the tax system is nevertheless disjointed, with each state imposing value-added tax (VAT) and the federal government levying excise duty. Input tax credits (ITCs) are not available for these levies, which range from 11% to 15%.
This tax structure might be made simpler by the inclusion of natural gas under GST, which is anticipated to be discussed at the GST Council meeting on December 21.
Equal Taxation:Natural gas will be subject to a single rate across all states under the GST, replacing the previous dual-tax structure of excise and VAT. This removes the cascading effect of taxes, streamlines compliance, and lowers administrative expenses.
Input Tax Credit (ITC) Eligibility:Since their final product is not subject to GST, suppliers like petroleum businesses are now unable to claim ITC (GST) on their inputs. Lower production costs will result from their ability to balance these taxes with the addition of GST.
Competitiveness:Industries will become more competitive both domestically and globally by reducing input costs for both manufacturers and consumers. This is especially important for industries that use a lot of energy.
Reduced Production Expenses:Non-creditable taxes have a domino effect that raises the ultimate cost of products and services. By including GST, manufacturers are able to pass savings on to customers, lowering the cost of necessities.
Increased Effectiveness of the Supply Chain:Logistical inefficiencies are decreased by unified taxes.
Benefits to the industry
Fertilizer and steel industries:Natural gas is the main fuel or feedstock used in these industries. ITC tax reductions will lower production costs, enabling these sectors to provide more affordable prices.
Distribution of City Gas:The cost of compressed natural gas (CNG) for automobiles and piped natural gas (PNG) for homes will decrease as a result of GST inclusion.
Pharma and Chemical:These industries will gain from decreased raw material costs, higher margins, and more accessible prices for essential products because to the availability of ITC.
Benefits to the government:Currently, a tax administrator is required to manage two tax administrations: one for central excise and state VAT administration, and another for GST administration. It would only be necessary to maintain a single set of administration for GST once it was introduced.
Difficulties
State income:Natural gas VAT now generates a sizable amount of cash for the states. The federal government could have to suggest compensation plans in order to gain their support.
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