Saturday, July 20, 2024

Bid to bring natural gas under GST

MUMBAI, JUNE 18: Natural gas players will be glued to the upcoming meeting of GST Council that could see the new Government take a shot at bringing the feedstock under GST.
Natural gas under GST will be “landmark event” leading to lower prices and benefiting companies such as Gujarat Gas, Petronet LNG and GAIL (India) Ltd, analysts said.
Natural gas at present comes under legacy taxes such as State VAT, Central Excise Duty and Central Sales Tax. The tax varies from State to State in the range of 14-24%. The meeting of GST Council is scheduled on June 22.
Besides natural gas, the markets are buzzing with the possibility of the Council looking at bringing aviation turbine fuel (ATF) under GST.
It could also review the levies on online gaming, horse racing and casinos.
“If natural gas is actually included under the ambit of GST, we reckon it would be a landmark event for the sector; it will create a level playing field for natural gas and help establish active gas markets (trading hubs, gas swaps)”, analysts at IIFL Securities said in a note.
The brokerage pointed out that while consumers will be one of the biggest beneficiaries, in the long-run, players across the value chain will gain. It expects city gas distribution (CGD) companies to pass on the benefit of ITC (input tax credit) that will make CNG and piped natural gas competitive.
“We think, biggest benefits would accrue to industrial consumers, which as of now are consuming natural gas, but not able to claim ITC.
“These include ceramic players, in clusters such as Morbi, and other industries such as refineries, fertilizers, etc., which as of now do not get ITC”, IIFL Securities said.
It added that including natural gas under GST could facilitate the creation of a trading hub in India, which is currently hindered by tax variations across States.
Gas trading companies would be able to transact amongst each other, either intra or inter-State.
In the long run, such a trading hub could also create a local benchmark price as seen in other regions across the globe such as Henry Hub (USA).
Global brokerage Jefferies said if natural gas is brought under GST, gas companies will pass on the savings to consumers. It added that Uttar Pradesh, Andhra Pradesh, Gujarat and Rajasthan are the biggest beneficiaries of VAT on the feedstock. With these States governed by the NDA it feels there could be breakthrough in discussions.
Jefferies said GAIL (India) Ltd would be among those companies which will benefit as increased natural gas competitiveness would drive higher adoption rates and medium-term growth in transmission & distribution volumes.
It added that the inclusion could lower natural gas cost by $0.8-0.9 per mmBtu and aid faster adoption.
(Courtesy: TT)