In a bid to increase the share of natural gas in the country’s primary energy basket to 15 per cent by 2030, up from the current 6.7 per cent, the Ministry of Petroleum and Natural Gas is mulling bringing the fuel under the ambit of GST.

Currently, natural gas is outside the purview of GST, and existing legacy taxes such as central excise duty, state VAT, central sales tax, etc., continue to be applicable on the fuel.

According to brokerage firm Jefferies, the total VAT on natural gas in FY23 was around Rs 20,000 crore. Assuming this is subsumed under GST, this could lower the fuel cost by USD 0.8-0.9 per mmbtu, improving its competitiveness to naphtha and fuel oil.

“We see gas companies passing on most of these benefits to the consumer, in line with the government’s stated objective on GST,” it said.

Positive for logistics sector

Lower natural gas prices in India have the potential to significantly reduce logistics costs, particularly through the adoption of natural gas-fuelled commercial vehicles.

In the logistics sector, cost of fuel is a major component of logistics expenses. According to industry experts, natural gas, as a cheaper alternative to diesel and petrol, can lead to substantial savings in fuel costs for the logistics sector. Therefore, a reduction in fuel prices directly translates to lower operational costs.

The adoption of natural gas vehicles (NGVs) is facilitated by their lower running costs and the environmental benefits they offer. With India’s focus on expanding city gas distribution networks and increasing the number of CNG stations, the infrastructure is becoming more conducive for NGVs.

With the fuel prices expected to come down if natural gas is brought under the ambit of GST, it will become economically viable for logistics companies to switch to NGVs.