New Delhi [India], After taking charge of the Petroleum Ministry for the second term, Minister Hardeep Singh Puri said he will work to bring natural gas under the Goods and Services Tax (GST). At present all petroleum products, alcohol and tobacco are out of the scope of GST.
Natural gas, being a petroleum product, is also outside the purview of GST and is taxed under old taxes like Central Excise, State VAT and Central Sales Tax.
Experts believe that taxation on natural gas is important to increase the use of natural gas in the economy. The government aims to increase the share of natural gas in the country's primary energy basket from 6.7 percent to 15 percent by 2030.Four key states, Gujarat, Rajasthan, Uttar Pradesh and Andhra Pradesh, which can influence the GST Council's decision, are now under BJP or NDA rule. The above four states are the biggest beneficiaries of VAT on natural gas. Experts believe there may be chances of a breakthrough in the GST Council now that Andhra Pradesh has also come under NDA rule, with its ally TDP leader Chandrababu Naidu taking oath as the Chief Minister of the state on Wednesday.
According to a recent report by Jefferies, if natural gas is brought under the ambit of GST, its cost could come down by USD 0.8-0.9/mmbtu (a unit of energy price measurement).
“The total VAT on natural gas in FY2013 was Rs 200 billion.Assuming it is included under GST, it could reduce the cost of natural gas by US$ 0.8-0.9/MMBtu, improving its competitiveness against naphtha and fuel oil. We see gas companies moving forward. Most of these benefits to the consumer are in line with the government's stated objective on GST,” the Jefferies report said.
The Jefferies report further said that in line with the stated objective of GST, gas companies are expected to pass on the benefits to consumers, which will reduce the cost of natural gas in the domestic market.
The improved competitiveness and lower cost of natural gas will lead to faster adoption and help the government achieve its target of 15 per cent natural gas share in the overall energy basket by 2030.Gas companies like GAIL will also benefit from faster volume growth and better LPG profitability. Rapid adoption of natural gas will also help transmission and trading volume growth in the medium term.
"If the 6 per cent VAT on natural gas sold in Morbi is subsumed under GST, the competitiveness of Gujarat Gas would improve by Rs 2.5 per kg propane at current prices," the Jefferies report said.
Petronet LNG, another state-run company, may also benefit if GAIL takes advantage of USD 0.8-0.9/MMBtu tax savings to drive volume growth of PLN's LNG volumes.
CNG companies will also get limited benefits, VAT on CNG in Delhi/Mumbai/Gujarat is 0 percent/3 percent/5 percent.If the benefit is passed on to consumers, it should increase discounts on petrol/diesel and help volume growth marginally.
Natural gas, being a petroleum product, is also outside the purview of GST and is taxed under old taxes like Central Excise, State VAT and Central Sales Tax.
Experts believe that taxation on natural gas is important to increase the use of natural gas in the economy. The government aims to increase the share of natural gas in the country's primary energy basket from 6.7 percent to 15 percent by 2030.Four key states, Gujarat, Rajasthan, Uttar Pradesh and Andhra Pradesh, which can influence the GST Council's decision, are now under BJP or NDA rule. The above four states are the biggest beneficiaries of VAT on natural gas. Experts believe there may be chances of a breakthrough in the GST Council now that Andhra Pradesh has also come under NDA rule, with its ally TDP leader Chandrababu Naidu taking oath as the Chief Minister of the state on Wednesday.
According to a recent report by Jefferies, if natural gas is brought under the ambit of GST, its cost could come down by USD 0.8-0.9/mmbtu (a unit of energy price measurement).
“The total VAT on natural gas in FY2013 was Rs 200 billion.Assuming it is included under GST, it could reduce the cost of natural gas by US$ 0.8-0.9/MMBtu, improving its competitiveness against naphtha and fuel oil. We see gas companies moving forward. Most of these benefits to the consumer are in line with the government's stated objective on GST,” the Jefferies report said.
The Jefferies report further said that in line with the stated objective of GST, gas companies are expected to pass on the benefits to consumers, which will reduce the cost of natural gas in the domestic market.
The improved competitiveness and lower cost of natural gas will lead to faster adoption and help the government achieve its target of 15 per cent natural gas share in the overall energy basket by 2030.Gas companies like GAIL will also benefit from faster volume growth and better LPG profitability. Rapid adoption of natural gas will also help transmission and trading volume growth in the medium term.
"If the 6 per cent VAT on natural gas sold in Morbi is subsumed under GST, the competitiveness of Gujarat Gas would improve by Rs 2.5 per kg propane at current prices," the Jefferies report said.
Petronet LNG, another state-run company, may also benefit if GAIL takes advantage of USD 0.8-0.9/MMBtu tax savings to drive volume growth of PLN's LNG volumes.
CNG companies will also get limited benefits, VAT on CNG in Delhi/Mumbai/Gujarat is 0 percent/3 percent/5 percent.If the benefit is passed on to consumers, it should increase discounts on petrol/diesel and help volume growth marginally.
