Scrap gas 'swap' rules and impose 4% VAT rate

Vol 16, PW 14 (07 Feb 13) People & Policy

One of India’s leading power sector lobby groups wants the government to impose a uniform VAT tax rate of 4% on gas.

Ashok Khurana, director general of the Association of Power Producers (APP), met oil minister Veerappa Moily in January with a letter demanding the re-classification of natural gas under the ‘declared goods’ umbrella - a move that would bar state governments from imposing VAT of more than 4%. VAT rates vary widely across India, ranging from 0% in Delhi to a high of 21% in Uttar Pradesh; Gujarat imposes 15%.

“All competing fuels such as coal, crude oil and domestic LPG have been notified by the central government as ‘declared goods’,” writes Khurana. “In its absence high VAT rates are being levied on natural gas making it very expensive for states without domestic gas or a LNG terminal.

” Khurana also demands radical changes to the tax regime on gas transportation, which he says is heavy tilted against buyers. In particular he wants changes to a set of ‘swap’ guidelines announced in March 2011 which allow GAIL to charge high R-LNG prices for deliveries of cheap D6 gas.

Assume a power producer in Andhra Pradesh buys R-LNG for $15/mmbtu, argues Khuranna, the actual price he pays is $22/mmbtu, where the additional $7/mmbtu covers VAT in Gujarat plus pipeline transmission costs to AP, plus VAT charged by the AP government. GAIL, meanwhile, will have ‘swapped’ this R-LNG with cheap D6 gas but still be charging R-LNG.

Khurana wants transportation charges to be from the KG-D6 wellhead, not from the R-LNG source (Gujarat). “It is clear,” he writes, “these swap guidelines do not solve the major issue of taxation.