5 commodities namely crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) were kept out of GST's purview given the revenue dependence of state governments on these sectors.
Illustration: Uttam Ghosh/Rediff.com
Oil Minister Dharmendra Pradhan on Thursday hoped that Finance Minister Nirmala Sitharaman will signal the inclusion of jet fuel and natural gas under the ambit of GST to reduce multiplicity of taxes and improve the business climate.
When the Goods and Services Tax (GST) was introduced on July 1, 2017 amalgamating 17 central and state levies, five commodities namely crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) were kept out of its purview given the revenue dependence of state governments on this sector.
"Our expectation is that in the coming Budget, ATF and natural gas is included in GST," he said at a FICCI conference in New Delhi.
Finance minister is scheduled to present the Union Budget for 2020-21 fiscal on February 1.
Including ATF and natural gas will not just help companies set off tax that they paid on input but will also bring about uniformity in taxation on the fuels in the country.
Including natural gas in GST is said to be one of the biggest drivers of not just consumption but will also incentivize producers to spend more on finding and producing more gas as well as incentivize importers to bring in more LNG.
ATF makes up for almost half of the cost of an airline and rates vary from state to state depending on local VAT.
A uniform GST would also push the usage of environment-friendly natural gas, whose share in the energy basket the government wants to increase to 15 per cent by 2030 from current 6.2 per cent.
Pradhan has been making a case for the GST Council - the highest decision-making body of the new indirect tax regime - to take a decision in favour of these two fuels at the earliest.
The Council is headed by Union Finance Minister and comprises representatives of all states and union territories.
Under the existing structure, both natural gas and ATF attract the Centre's excise duty and a state's value-added tax (VAT).
Both these and all other levies will get subsumed under GST if they are brought under its ambit.
The decision on their inclusion depends on the financial position of states as revenues from these five petroleum products constitute a substantial chunk of state government finances.
Barring a few, most of the states are incurring revenue shortfall as GST subsumed a dozen of their taxes, introducing the single levy, in a bid to simplify taxation system and remove the cascading effect of 'tax on tax' in the country.
According to the industry, keeping ATF and natural gas out of the GST net was increasing the cost of these products as a tax on inputs is not being credited against the sale of these products, which ultimately, adds to the cost of production.
The aviation ministry has time and again sought inclusion of ATF under GST as any surge in international oil rates gets reflected in domestic jet fuel prices, leading to costlier air tickets.
Natural gas is widely used as industrial input by a variety of industries - from power to steel - and it coming under GST would help eliminate the cascading impact of taxes, bringing down prices of CNG and piped natural gas.