The Centre and the States may negotiate the early inclusion of natural gas in the GST fold

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New Delhi: With GST revenue collections on the mend following the second wave of the COVID epidemic, the Centre is expected to begin discussions with states on including petroleum items in the new indirect tax fold.

According to sources familiar with the situation, the Centre may raise the matter of bringing natural gas under the GST system first, before bringing the whole oil and gas industry under it, based on the Petroleum Ministry’s suggestion.

The 45th GST Council meeting will take hold in Lucknow on September 17, 2021. Though the members of the Council will debate a number of pressing problems, including state compensation, GST rate revisions on COVID necessities, and the inverted duty structure, the Centre is also expected to take up the case for the early inclusion of gas into the new taxation fold.

States have been hesitant to consider taking high-income-generating petroleum goods out of the GST fold since their financial position is still tight owing to the COV- ID-19 epidemic. However, with GST collections improving significantly this year, with most months of FY22 exceeding the Rs 1-lakh-crore psychological mark, the Centre believes it is the right time to push for tax reforms in the oil and gas sector, with the inclusion of gas aiding in the country’s plan to develop a gas-based economy.

Gas inclusion would not pose a problem for the GST Council because it is primarily an industrial commodity with a simple transition to the new taxation. In the event of this switchover, the income implications for the states are likewise minimal.

“States are in a stronger situation presently, with GST revenue surpassing Rs 1 lakh crore in recent months, and the Centre has strengthened their cash position through new borrowing programmes. This could make the Council’s gradual inclusion of petroleum products under GST simpler “According to an official source in the Ministry of Oil,

The GST on natural gas will save state-run oil corporations like ONGC, IOCL, BPCL, and HPCL Rs 25,000 crore in taxes since they would gain credit for taxes paid on inputs and services. Tax credits cannot be transferred between the two taxing regimes.

In its recommendation to the Commerce Ministry, the Steering Committee for Advancing Local Value-Add and Exports (SCALE), led by Mahindra & Mahindra MD & CEO Pawan Goenka, has also argued for the granting of an input tax credit for natural gas to make its costs more competitive. This might happen after GST is implemented.
According to sources, Council may adopt a three-tiered GST system for gas, with residential piped natural gas (PNG) taxed at a lower rate of 5%, commercial piped natural gas taxed at a median rate of 18%, and automobile fuel CNG taxed at a maximum rate of 28%.

In its recommendation to the Commerce Ministry, the Steering Committee for Advancing Local Value-Add and Exports (SCALE), led by Mahindra & Mahindra MD & CEO Pawan Goenka, has also argued for the granting of an input tax credit for natural gas to make its costs more competitive. This might happen after GST is implemented.
According to sources, Council may adopt a three-tiered GST system for gas, with residential piped natural gas (PNG) taxed at a lower rate of 5%, commercial piped natural gas taxed at a median rate of 18%, and automobile fuel CNG taxed at a maximum rate of 28%.