Natural gas, jet fuel may enter GST first, before petrol and diesel

Early harvest for inclusion in new tax regime, fewer states to object

With demand for including petroleum in the goods and services tax increasing as fuel prices skyrocket, natural gas and aviation turbine fuel (ATF) may be the low-hanging fruit the GST Council may take up before petrol and diesel.

“Including petrol and diesel seems difficult at this point with not all states being on board. There could be an early harvest of sorts with the inclusion of natural gas and ATF in the GST to begin with. That seems quite doable,” said an official.

Petrol prices across the four metros rose by over Rs 3 a litre in two weeks after daily price revision was resumed on May 14 after the Karnataka polls. The price of petrol stood at Rs 77.83 in Delhi, Rs 80.40 in Kolkata and Rs 85.50 in Mumbai.

Manpreet Singh Badal, finance minister of Punjab, told Business Standard that the GST Council should get together in the first week of June and work out the inclusion of petroleum products in the GST, beginning with natural gas and ATF. The Congress-ruled states, he added, were demanding the inclusion of all petroleum products in the GST in the spirit of “one nation, one tax”. “The BJP has gone into election mode and it is not going to tinker with the GST in a big way. Even meetings are not being held as frequently as they used to,” he said.

Civil Aviation Secretary Rajiv Nayan Choubey earlier this week said a proposal would be made to the finance ministry to bring ATF under the GST to curb increase in jet fuel costs due to rising global crude oil prices.

Another official pointed out that including natural gas and ATF might be easier as there were fewer states that would need to be convinced. “The use of natural gas is concentrated in only 8-10 states. As for ATF, only states with large airports will be worried,” he added. Besides, the portion of revenue from natural gas and ATF in the states’ revenue pool is far lower than from petrol and diesel.

According to estimates, states earn about Rs 60 billion in tax revenue from natural gas, with most of it concentrated in Gujarat, Maharashtra and Uttar Pradesh.

Natural gas is levied 14 per cent excise duty by the Centre, while the value added tax (VAT) imposed by states ranges between 5 and 14.5 per cent. As for jet fuel, the excise duty is 14 per cent, while VAT ranges from 21 per cent in UP to 33 per cent in Telangana.

The finance ministry had earlier proposed bringing natural gas into the GST at 5 per cent to benefit upstream exploration and production companies, which would allow them to receive credit for the GST paid on inward supplies and ensure lower costs.

Petroleum Minister Dharmendra Pradhan, backed by Transport Minister Nitin Gadkari, have made a pitch for inclusion of petroleum products in the GST so that consumers can benefit from price rationalisation.

“If it (petrol and diesel) can be brought under GST, rates will come down. Maharashtra has already given its consent,” Maharashtra Chief Minister Devendra Fadnavis said on Thursday.

To this, former finance minister P Chidambaram tweeted: “He (Fadnavis) should ask his party’s government at the Centre to do that.” 

The BJP-led government has lowered the excise duty on petrol and diesel only once during its tenure but has raised it nine times between November 2014 and January 2016.

On the insistence of states, petroleum has been kept out of the GST and, hence, continues to face a cascading effect of multiple taxes. However, certain petroleum products such as cooking gas, kerosene and naphtha are part of the GST.

While crude oil, diesel, petrol, natural gas and ATF do not attract the GST, these are used as inputs in the petrochemical, fertiliser and transport industries and this leads to a cascading of taxes. Naphtha and liquefied petroleum gas are included in the GST.

States earned Rs 1.6 trillion in tax revenue from petroleum products in 2016-17, with Maharashtra, Gujarat, Uttar Pradesh and Tamil Nadu the top revenue earners.  “If the central government is serious about including petroleum products in the GST, let them make a serious proposal. Let them commit to a programme for compensating the states for the loss of revenue. Without such firm commitment such talk is wooly,” Kerala Finance Minister Thomas Isaac tweeted recently. Sushil Modi, Bihar deputy chief minister had earlier told  Business Standard that states must be allowed to levy additional taxes over the GST on petroleum products.  

“The Centre and states should be free to levy additional taxes over and above the GST rate. This is a general principle for taxing petroleum throughout the world. At least, it will ensure companies receive input tax credit,” he said, adding the objective was to keep tax revenue intact.