Centre to include oil & gas under GST, discussion with states to begin soon

Goods & Services Tax (GST)

As the GST revenue collection surged amid the second wave of the COVID pandemic and showed positive growth, the Centre is likely to push discussions with the states for the inclusion of petroleum products under the new indirect tax fold.

As reported by a national daily, the Centre may take up the issue of bringing natural gas under the Goods & Services Tax (GST) based on the Ministry of Petroleum and Natural Gas. Taxing natural gas will be the initial step before bringing the entire oil and gas sector GST.

The council members, at the upcoming 45th GST Council meeting which is scheduled for September 17, at Lucknow, will brainstorm over several pending issues including states compensation, revision of GST rates on Covid essentials, inverted duty structure, etc. The Centre is likely to table the proposal of early inclusion of gas into the new taxation fold.

Due to the impact that the COVID pandemic had on revenue, states have been hesitant to bring high-revenue generating petroleum products under the GST fold. However, as the GST collections have improved substantially in the current year remaining above the Rs 1 lakh crore in most months of FY22. Considering this, the Centre feels it is the right time to push for tax reforms in the oil and gas sector as well with the inclusion of gas helping in the plan to develop a gas-based economy in the country.

Bringing natural gas under GST will not be challenging for the Council as it is largely an industrial product where a switchover to the new taxation is not tough. Also, the revenue implication, in the case of this switchover will be low.

Reportedly, an official source from the Oil Ministry said, “States are in a fairly better position now with GST revenue hitting over Rs 1 lakh crore-mark for the past few months and the Centre has also improved their liquidity position through additional borrowing schemes. This should make phased inclusion of petroleum products under GST easier for the Council.”

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Imposing GST on natural gas would aid state-operated oil companies like ONGC, IOCL, BPCL and HPCL to save the tax burden up to Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems.

Mahindra & Mahindra Managing Director and CEO Pawan Goenka leading the Steering Committee for Advancing Local Value-Add and Exports (SCALE), in its report to the Ministry of Commerce, has shown support for the provision of the input tax credit of natural gas to make its prices more competitive after it is included in GST.

As per sources, the Council could look forward to a three-layered GST structure for gas wherein the residential piped natural gas (PNG) could be taxed at a lower rate of five per cent, commercial piped natural gas could be taxed at a rate of 18 per cent, and the CNG for vehicles could be taxed at a maximum rate of 28 per cent. However, a proposal on the same has not been drafted yet. It could be tabled after there’s a consensus on the inclusion of gas under GST.