Cut sales tax on natural gas to 8%, says study

Despite the state government announcing a reduction of eight per cent in the sales tax of natural gas, bringing it down from 20 per cent to 12 per cent last month, the sales tax revenue from natural gas will still be higher than what it currently is, says a study of the Gujarat Council of Confederation of Indian Industry.

Prior to the slashing of sales tax rates on natural gas, the government earned around Rs 600 crore as sales tax on natural gas out of an overall sales tax income of around Rs 3,000 crore annually.

With the state scheduled to experience a surplus of natural gas for the first time, by the end of the calendar year, the number of user industries of gas will substantially go up, said Ajit Kapadia, chairman of CII Gujarat energy council.

He said while gas is being used at present only by certain industries located at Surat, Ankleshwar and a few pockets of north Gujarat, it will be used by many more industries by the end of the next year.

In a study, Sales tax on natural gas in Gujarat', prepared by Ravindra Dholakia, a professor of IIM, Ahmedabad, the CII had suggested that the sales tax on natural gas be brought down from 20 per cent to eight per cent.

Subsequently, the report says, the sales tax must be brought down to four per cent after VAT is implemented in Gujarat as natural gas will be put under the category of merit level fuels.

"The step taken by the state government is one in the right direction, but the CII report feels that there is further scope for downward revision of sales tax on natural gas," said Kapadia.

He said the sales tax on natural gas is lower in neighbouring states and there is always the chance of the gas being taken outside Gujarat.

"Since we are closest to the source "" there are two LNG terminals in south Gujarat itself "" there is a need to take advantage of this situation," Kapadia said.

The study has gone into the examination of reduction in sales tax option to three different alternative rates of 12 per cent, eight per cent and four per cent and showed that reduction to the level of eight per cent would be the most ideal.

With the sales tax on natural gas being reduced to eight per cent, conditions would be ideal to replace pollution-causing fuels with gas, the study showed.

The energy produced in the state, to a great extent, is coal-based and the state has to meet high transportation costs in procuring coal from other states, thereby increasing the cost of energy production.

"With the cut in sales tax on gas, Gujarat will have a competitive advantage over other states in terms of investments, pollution control and public health. This, in the long term will reduce government expenditure on health and promote better living conditions," Kapadia said.

Although industries will require to invest some amount to make their machinery compatible to gas as fuel, the costs can be written off against energy conservation and there will be no inventory maintenance required, said Dipesh Shah, counsellor-energy, CII, Gujarat.

"Most importantly, gas can be used to generate steam, power and even refrigeration through vapour absorption machines," said Shah.

While conversion of machinery from petrol, diesel and fuel oil to gas-based will be much more easier, it is likely to be more expensive while converting from coal based to gas-based.