Include gas in GST or watch the gas sector die

Vol 20, PW 24 (24 Aug 17) People & Policy
     

Unless gas is included under the Good and Service Tax (GST) gas retailers fear the death of the sector.

Doomsday talk is circulating because under the GST regime in force since July 1 gas is on average 25% costlier than competing dirty fuels such as furnace oil, petcoke, coal and naphtha. A source explains GST at 18% is charged separately on all intermediate processes, including LNG re-gasification and transportation.

This cost is passed on to consumers because gas is not under GST. Unlike competing fuels no "input credits" are available for gas, which would allow customers to set off the final tax they pay against the intermediate taxes.

Worse, LNG attracts a 2.5% import tariff and the 15% service tax earlier charged for re-gasification has increased to 18% under GST. GAIL, the biggest gas wholesaler, earlier offered gas on a delivered basis, allowing it to bundle together the final gas price and transportation costs.

In this way the 15% service tax on transportation could be avoided. But under GST 'bundling' is banned.

"Before, gas was 15% more expensive than competing fuels," we hear. "But it had a market because customers didn't mind." Now it's feared a 25% gap will see bulk customers desert gas for competing fuels.

Mahanagar Gas, Indraprastha Gas and Adani Gas, have passed on some of the cost to consumers, raising prices to households and CNG by 0.5% to 3% following GST.

LNG Summit