E S Ranganathan, managing director of Indraprastha Gas Ltd (IGL), is batting for inclusion of natural gas, piped natural gas and compressed natural gas (CNG) in the proposed unified indirect tax – goods and services tax (GST) – so that gas companies can claim input tax credit on GST paid at procurement stage and pass on the benefit to consumers.
He told DNA Money that Gas Authority of the India (GAIL) and IGL have made a representation to the government for keeping the natural gas within the proposed GST as it was consumed by priority sectors like power and fertilisers. Ranganathan feels such a move would bring down prices of natural gas products and offer relief to consumers. “GAIL has requested the (finance) ministry for natural gas to be included in GST because it is going to priority sectors like power and fertiliser. If they (natural gas products) are outside GST then all the taxes at the input point will not be offset at the point of sale. So, in effect, consumers will be paying two taxes – one that is paid at the procurement point and another as sales tax. So, we have requested the government to include it in the GST in whichever bracket they want, so that at least the input cost can be set off,” he told DNA Money.
One of the reasons the IGL chief feels natural gas could easily be accommodated within GST is that it would not result in a big revenue loss to the states. “They (states) are hardly earning anything from natural gas”.
Ranganathan said revenues from natural gas constituted just around 7% of the revenues earned from primary energy. He said despite the push from various authorities for the fuel to be made part of products on which GST would be levied, it may not go through as decisions on GST were consensus-driven.
According to him, state-owned gas company GAIL pays taxes of around Rs 100 crore per month. However, he said, it was Reliance Industries Limited’s mega refinery Jamnagar and other petroleum product companies in Gujarat, which shell out huge taxes to the state government. “All the natural gas in the country and half of the petroleum products are originating from Gujarat,” he said.
Under the existing tax regime, typically purchase of petroleum products gets taxed at 11.5% (value added tax or VAT) and at the point of sales it varies from states to state. For instance, VAT on the sale of fuel is zero in Delhi and 12.5% in Uttar Pradesh (UP).
“What will happen is if they (petroleum products) are out of GST, consumers will be paying 11.5% VAT in Gujarat and another VAT on sales (which differs in each state). Beside these two levies, they will also pay transmission tariff and service tax, which is charged by GAIL. All these charges will be borne by the consumers,” he said. Ranganathan said under GST, consumers will have to pay only one tax as producers can claim input tax credit.
V S Krishnan, tax policy advisor, EY India also feels making natural gas part of GST would be good as it is “input of many sectors that are part of the GST chain”.
He also believes it will not hurt the state revenues as its contribution to it is very small.