The Petroleum Ministry has recommended the Finance Ministry to bring natural gas under the Goods and Services Tax ( GST ) Act. This proposal is expected to be presented at the next GST Council meeting in Jaisalmer, Rajasthan, on December 21.
The key states, including Maharashtra and Gujarat, have already expressed support for the proposal. Additionally, the Petroleum Ministry has provided supplementary data to the Finance Ministry regarding the great impact of including natural gas under GST.
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Over the past few months, several meetings have been held to discuss the inclusion of natural gas under GST, with the government aiming to implement this change in a phased manner, reported ET.
Currently, VAT rates on natural gas vary between 14% and 24%, while VAT on Aviation Turbine Fuel ( ATF ) ranges from 5% to 18%. The GST regime, which was introduced in 2017, initially excluded five major petroleum products: crude oil, natural gas, petrol, diesel, and jet fuel.
Natural gas is subject to both central excise duty at the union level and VAT at the state level. These varying tax rates complicate the taxation, resulting in businesses, including gas producers and user industries, facing different tax burdens and losing out on full input tax credit benefits.
The upcoming GST Council meeting may also address other proposals, including the exemption of GST on term life insurance and health insurance premiums. A Group of Ministers ( GoM ) has already recommended these changes, with recent growth data in health insurance strengthening the case for a reduction in GST on premiums.
Additionally, the Finance Ministry is reviewing the windfall tax levied on petroleum products, analyzing tax collections and crude price trends before deciding whether to maintain or scrap the tax.
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In August 2024, as crude prices declined, the windfall tax on domestic crude oil production was reduced to zero from September 18, 2024, while the windfall tax on diesel and ATF exports remained nil.
The positive side of including the natural gas under the GST purview is the uniformity in the tax rates. As it currently falls under the states’ VAT, the tax rates vary in different states. In some states it is 14% and in some it is 15%. Thus, this non-uniformity will be avoided. Implementing this will help the businesses as they have to deal with different tax rates in different states. Additionally, there will be boost in the revenue of the central government.
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