Dharmendra Pradhan pitches for inclusion of all fossil fuels in GST regime

Dated 7th December, 2016

Oil minister Dharmendra Pradhan on Tuesday pitched for inclusion of all hydrocarbon products within the goods and service tax (GST) system expected to be rolled out next year. The minister said use of natural gas in the economy is likely to rise four-fold to 200 billion cubic metres a year in the future.

Addressing reporters after a ministerial conference on gas in the capital, Pradhan endorsed the call for including imported gas within GST, a proposal made earlier in the day by visiting chief executive officer of Qatar’s RasGas Co. Ltd, Hamad Mubarak Al Muhannadi. GST seeks to establish a single market across the country by doing away with multiple levies by the union and state governments.

“GST Council should consider inclusion of all hydrocarbon products within GST,” said Pradhan.

The Council is a powerful body of state finance ministers chaired by union finance minister Arun Jaitley, which has been empowered to decide when natural gas and four other hydrocarbons—crude oil, jet fuel, petrol and diesel—could be brought into GST. These items, a major source of revenue for states, are being kept outside GST in the initial years as part of a bargain that helped the federal government win the consensus of states for the tax reform.

“We should ask why is liquified natural gas (LNG) not part of GST while competing fuels like LPG, naphtha and fuel oil are,” RasGas chief executive Al Muhannadi said earlier in the day at the Petrotech conference here. RasGas supplies about 8.5 million tonnes a year of LNG to India on long-term contracts.

Excluding a product from GST and continuing it under the current tax system limits the ability of businesses to set off their tax credits against their tax liability because they are subject to two parallel tax systems. The Modi government’s 8 November decision to discontinue large currency bills and its likely impact on consumption in the economy has, however, prompted some state finance ministers like West Bengal’s Amit Mitra to express doubts about the tax reform kicking off from 1 April 2017 as had previously been agreed.

The projected growth in consumption of gas is based on the target set by the government to raise the share of gas in the primary energy basket of coal, crude oil and gas, from 6.5% now to 15% by 2030, Pradhan said.

According to David Carroll, president of Oslo-based International Gas Union, a non-profit entity promoting gas, more gas is being added to global supply from producing nations like Australia and the US which is beneficial for the interests of consuming nations.