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With Andhra under NDA governance, chances of bringing natural gas under GST brightens

New Delhi: Hardeep Singh Puri, who has assumed charge of the Petroleum Ministry for a second term, has announced his intention to advocate for the inclusion of natural gas under the Goods and Services Tax (GST). Presently, petroleum products, alcohol, and tobacco remain outside the purview of GST.

Natural gas, despite being categorized as a petroleum product, is not subject to GST. Instead, it is taxed under the previous regime’s central excise duty, state VAT, and central sales tax.

Experts emphasize that taxation policies regarding natural gas play a crucial role in its increased utilization within the economy. The government aims to elevate the share of natural gas in the country’s primary energy mix to 15 percent by 2030, up from the current 6.7 percent.

The decision-making influence of the GST council rests significantly on key states such as Gujarat, Rajasthan, Uttar Pradesh, and Andhra Pradesh, all of which are currently governed by the BJP or NDA. These states are among the largest beneficiaries of VAT on natural gas. With Andhra Pradesh now under NDA governance following the oath-taking of its ally TDP leader Chandrababu Naidu as Chief Minister, prospects for progress within the GST council appear promising.

A recent report by Jefferies suggests that if natural gas is brought under the GST ambit, its cost could decrease by USD 0.8-0.9/mmbtu (a unit of energy value).

Jefferies forecasts that gas companies, in line with the government’s GST objectives, will likely transfer most of these savings to consumers, thus reducing the domestic market’s natural gas costs.

The resulting enhanced competitiveness and reduced cost of natural gas are anticipated to accelerate its adoption, facilitating the government’s objective of achieving a 15 percent share in the overall energy mix by 2030.

Gas companies such as GAIL are poised to benefit from accelerated volume growth and improved LPG profitability. Moreover, increased adoption of natural gas will bolster transmission and trading volume growth over the medium term.

According to the Jefferies report, the inclusion of the 6 percent VAT on natural gas sold in Morbi under GST could enhance Gujarat Gas’s competitiveness against propane by Rs 2.5/kg at current prices.

Additionally, Petronet LNG, a government enterprise, could experience growth if GAIL channels the USD 0.8-0.9/mmbtu tax savings towards driving PLNG’s LNG volume expansion.

CNG companies are expected to see limited benefits; VAT on CNG in Delhi/Mumbai/Gujarat stands at 0 percent/3 percent/5 percent. If these savings are passed on to consumers, it could further widen the price gap with petrol/diesel and marginally boost volume growth.

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