GST Council Meeting: Natural Gas Inclusion Expected

Natural gas players are eagerly anticipating the upcoming GST Council meeting, which could see the new government attempt to bring natural gas under the Goods and Services Tax (GST).

Analysts have highlighted that including natural gas under GST would be a “landmark event,” potentially leading to lower prices and benefiting companies such as Gujarat Gas, Petronet LNG, and GAIL (India) Ltd.

Currently, natural gas is subject to various legacy taxes including state VAT, central excise duty, and central sales tax, with rates varying from 14-24% depending on the state. The GST Council meeting is scheduled for June 22.

In addition to natural gas, there is speculation that the council might also consider bringing aviation turbine fuel (ATF) under GST. The council is also expected to review levies on online gaming, horse racing, and casinos.

“If natural gas is included under GST, it would be a landmark event for the sector, creating a level playing field and helping to establish active gas markets like trading hubs and gas swaps,” analysts at IIFL Securities noted.

The brokerage emphasized that while consumers would be the primary beneficiaries, players across the value chain would also gain in the long run. It expects city gas distribution (CGD) companies to pass on the benefit of input tax credit (ITC), making CNG and piped natural gas more competitive.

“We believe the biggest benefits would accrue to industrial consumers who currently use natural gas but cannot claim ITC,” IIFL Securities stated. This includes ceramic manufacturers in clusters like Morbi, and industries such as refineries and fertilizer producers that currently do not receive ITC.

The inclusion of natural gas under GST could also facilitate the creation of a trading hub in India, which is currently hindered by varying tax rates across states. Gas trading companies would be able to transact with each other both intra- and inter-state.

In the long term, such a trading hub could establish a local benchmark price, similar to Henry Hub in the USA.

Global brokerage Jefferies noted that if natural gas is brought under GST, gas companies are likely to pass on the savings to consumers. States such as Uttar Pradesh, Andhra Pradesh, Gujarat, and Rajasthan, which benefit significantly from VAT on natural gas, might see progress in discussions due to being governed by the NDA.

Jefferies added that GAIL (India) Ltd would particularly benefit from the increased competitiveness of natural gas, driving higher adoption rates and medium-term growth in transmission and distribution volumes. The inclusion under GST could reduce natural gas costs by $0.8-0.9 per mmBtu, promoting faster adoption.