Govt mulls sales tax cut for natural gas

The Government is considering a proposal to grant “declared good” status to natural gas and bio-fuels, report Deepak Joshi and Gaurav Choudhury.

The Government is considering a proposal to grant the so-called “declared good” status to natural gas and bio-fuels, making these petroleum products eligible for a lower and uniform sales tax across the country, a government official said.

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If the proposal makes it to the upcoming budget, it would bring down prices of natural gas and biofuel, which are increasingly becoming popular because they cause less pollution and can be less expensive than conventional fuels.

Liquefied natural gas, or LNG, has already emerged as a preferred fuel for fertiliser and power sectors. Compressed natural gas is gaining ground as a transport fuel, while residents of large cities are increasingly switching to piped natural gas for cooking. The total demand for natural gas in the country is about 120 million metric standard cubic meter per day.

Providing declared goods status to LNG would ensure an uniform 4 per cent sales tax on the fuel across the country, said a government official, who spoke on condition of anonymity. Liquefied petroleum gas, or LPG, already gets that treatment. After the introduction of value added taxation (VAT) system from April 2005, natural gas has been kept under a revenue neutral rate. Some states have kept natural gas out of VAT and are levying a sales tax of as high as 20 per cent.

“VAT laws of some states also do not permit availing of input credit if natural gas is used as fuel and fertiliser feedstock. This has prevented cost reduction,” the official said.