KOLKATA (miningweekly.com) – The Indian energy sector is betting big on inclusion of liquefied natural gas (LNG) in the goods and service tax (GST), following the electoral mandate received by the right-wing Bharatiya Janata Party (BJP) to form the federal government for a second term
The industry reckons that with the BJP-led government receiving an overwhelming majority at the recently concluded national elections, the new government in New Delhi will have sufficient political capital to push ahead with reforming the energy sector.
Industry insiders have pointed out that reforming the energy sector slowed down amid the political uncertainties of the election season, but that the government will likely restart reforms by including LNG in the GST tax regime, considering that it constitutes more than 50% of the country’s total natural gas mix and a single unified tax rate will increase efficiencies across producing and consuming sectors.
LNG producing and importing companies have submitted to the government that with “unclean” coal already included in GST, there is a strong case for including “clean energy” LNG too, if government’s avowed policy to make the country a natural gas-driven economy is to be realised.
As things stand now, LNG attracts a customs duty in the case of imported shipments, as well as a service tax and value added tax (VAT), with the latter being a state levy; depending on various differential VAT rates, cumulative tax incidence worked out to within a range of 6% to 26%, making the product costlier and uncompetitive compared to other fossil fuels like coal.
A single GST rate would subsume current multiple tax rates and the single rate would enable ‘pass through’ of the levy at every stage of transaction, industry analysts have said.
In fact, it has been worked out that with increasing use of LNG in transportation and gas distribution to households, a single tax rate enabling ‘pass-through’ between market intermediaries could actually bring down energy tariffs at the end-consuming point.
Currently, the tax a user of natural gas pays at the input stage can not be offset against tax paid at the final consumption stage.
Royal Dutch Shell, which owns a five-million-ton-a-year LNG terminal in western state of Gujarat had early this year sought inclusion of LNG in GST. Similarly, Qatar, the largest supplier of LNG to India, at 8.5-million tons a year, also urged the Indian government to bring the product under GST to bolster demand.
Government officials said that ahead of the national elections, the Petroleum and Natural Gas Ministry had appointed a high-level committee to examine various issues impacting India’s rising oil import dependency, and that the new government was expected to move fast on the aspect of reforming the existing tax regime.