Finance Minister Arun Jaitley asks states to cut VAT on natural gas, other fuel


New Delhi: Finance Minister Arun Jaitley has written to state chief ministers seeking a cut in sales tax or VAT on fuels like natural gas that have been kept out of the GST but are used as inputs for goods that come under the new indirect tax regime.

Crude oil, petrol, diesel, natural gas and jet fuel (ATF) have been kept out of the Goods and Services Tax (GST) which kicked in from July, replacing over a dozen central and state levies like central excise, service tax and VAT with a single uniform levy.

“The letter by Finance Minister highlights a concern being raised by the manufacturing sector in the country regarding the rise in input costs of petroleum products happening on account of transition to GST regime,” an official statement said.

Inputs like natural gas are used for power generation as well as in manufacturing fertiliser, petrochemicals and a variety of products like glass. Crude oil is used to make petrol and diesel as also kerosene, LPG and industrial fuels like naptha, fuel oil and bitumen.

While other industries can claim input tax credit or set off tax paid on inputs with that paid on the final product, these industries cannot do so as crude oil, three petroleum products and natural gas are out of the GST’s ambit. This raises cost for the industries using either of the five products as inputs.

Jaitley has written to state chief ministers “urging them to reduce burden of Value Added Tax (VAT) on petroleum products used as inputs in making of goods after the introduction of GST”, said the statement.

Some states had lowered VAT to 5 per cent on Compressed Natural Gas (CNG) used for manufacturing of goods. Some others had cut VAT on diesel.

VAT on diesel ranges from 17.4 per cent in Delhi to 31.06 per cent in Andhra Pradesh. On natural gas it varies from nil to 15 per cent.

Natural gas alternatives such as naphtha, fuel oil and LPG are already included in the GST. While LPG will be taxed at 5 per cent, naphtha and fuel oil will be taxed at 18 per cent.

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