Panel Suggests Excise Duty Removal on CNG, GST Inclusion for Natural Gas
A panel has suggested removing excise duty on Compressed Natural Gas (CNG) and including natural gas under the Goods and Services Tax (GST) regime to streamline taxation and boost consumption.
The inclusion of natural gas under the GST regime is a long-debated issue with significant policy implications. Currently, natural gas is subject to a complex web of central excise duty, state VAT, and central sales tax, leading to a cascading tax effect and hindering the development of a seamless national gas market. The panel's suggestion aims to address this by bringing natural gas under the GST, allowing for input tax credit (ITC) and reducing the overall tax burden on consumers. This move is expected to benefit industries such as power, fertilizers, and transportation, which rely heavily on natural gas as a feedstock or fuel. The change could lead to increased competitiveness and investment in these sectors. However, the actual impact will depend on the final GST rate and the mechanism for transitioning existing contracts and infrastructure.
Currently, the levy of excise duty on CNG is governed by the Central Excise Act, 1944, while VAT is levied by respective states. Bringing natural gas under GST would require amendments to the CGST Act, 2017 and corresponding state GST laws, specifically concerning the list of exempted goods and services.
The inclusion of natural gas under GST is a welcome move, but its success hinges on a reasonable GST rate and a smooth transition mechanism. Businesses should brace for potential changes in their tax liabilities and contractual arrangements, and should actively engage with policymakers to ensure a seamless transition.
Natural gas has been kept out of the GST regime since its implementation in 2017, primarily due to revenue concerns of state governments. The existing tax structure results in higher costs for consumers and restricts the free flow of natural gas across state borders. Several industry bodies and experts have advocated for its inclusion in GST to create a level playing field and promote cleaner fuel adoption.
The proposed GST inclusion of natural gas could simplify taxation, reduce costs, and boost consumption, but requires careful consideration of revenue implications for both the central and state governments.
The GST Council's decision on the panel's recommendations will be crucial, as it will determine the timeline and modalities for including natural gas under the GST regime.