Govt must get serious on bringing gas under GST

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The ministry of petroleum and natural gas (MoPNG) has taken on board a proposal—mooted by the industry during recent pre-budget discussions—to bring natural gas within the ambit of the Govt Goods and Services Tax (GST). This will ensure a uniform tax on gas throughout the country and lower its price for both industrial and domestic use, which may help increase its share in India’s energy mix from the 6.2% to 15% by 2030. The proposal will be placed before the GST Council after stakeholders’ consultations.

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Under the pre-GST regime, industries and businesses faced multiplicity of taxes which varied widely across states. For instance, on natural gas while the central excise duty (CED) levied by the central government is 14%, the value added tax (VAT) varies from a low of 5% in Rajasthan to 14.5% in Andhra Pradesh and Karnataka, 15% in Gujarat to 21% in Uttar Pradesh. In addition, states also levied local taxes such as octroi, purchase tax, turnover tax, etc. That system was also afflicted by the so-called cascading effect or tax-on-tax.

GST is a ‘single tax’ applied all over India with a set-off provision for tax paid on inputs, it paves the way for freeing the system from the above anomalies. However, the constitutional amendment Act on GST while providing for inclusion of crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) under its ambit, had kept these products ‘zero-rated’. Put simply, these continue to be governed by the pre-GST dispensation. When will the ‘zero-rated’ tag go? The Act has given the power to the GST Council to decide.

In this regard, the then finance minister and chairman, GST Council, Arun Jaitely had alluded to taking up the inclusion of natural gas in its 18th meeting, ie, just before the launch of GST (July 1, 2017). During 2018 and 2019 also, this was put on the Council’s agenda but was deferred. In this backdrop, the talk of including gas now (albeit after consultations with stakeholders) is ludicrous.

Furthermore, replying to a question on a TV channel (July 1, 2017), Jaitely had said ‘he was personally not in favour of excluding the aforementioned products’. Yet, the Centre and the states decided to exclude them, and the position continues till date. A close look at how things have panned out brings out several inconsistencies in their approach to this most crucial issue.

First, the GST Compensation Act, 2017 provided for compensation to the states for five years (2017-18 to 2021-22) for the loss of revenue to be calculated as the difference between their actual collection and the amount they would have got assuming annual growth at 14% over the 2015-16 level under the pre-GST regime. Further, vide an amendment to the GST Compensation Act, 2018 (it provided for levy of a cess on goods falling in the 28% tax slab such as automobiles, tobacco, drinks etc), the government ensured that the required funds are garnered to compensate the states for the loss.

In view of above, and having made arrangements—backed by constitutional guarantee—to fully compensate the states for any shortfall in revenue, it was illogical to keep oil and gas products outside GST in the first place. It may be argued that states face a shortfall even while keeping them out and by bringing them in, the shortfall would have been even higher. So what? This does not in any way dilute a compelling case for their inclusion from day one. All that the Council needed to do was levy cess at a higher rate to meet the higher shortfall.

Second, the exclusion of oil and gas products from GST purview is extremely damaging. While, on the one hand, oil and gas companies, viz Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL), Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), etc, don’t get credit for the taxes paid on their purchase of inputs, consumables and equipment, on the other, their output faces multiple levies, viz CED, VAT and other local levies of the erstwhile dispensation and their cascading effect.

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