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CNG and VAT

The union and state governments' commitment to clean air will be put to the test given the tax implications of the budget. Depending on a forthcoming decision of the Empowered Committee of State Finance Ministers, the new Value Added Tax (VAT), coming into effect in April this year, could potentially add to the cost of Compressed Natural Gas (CNG). This would be the second time taxes hit this clean fuel, the first being an additional 10 per cent service tax on natural gas transportation the finance minister announced. According to J Mohananey, General Manager Finance, Indraprastha Gas Limited, New Delhi's natural gas and CNG gas pump operator, it is still unclear whether VAT will apply to CNG. If levied, it will add to CNG price at the pump.

The new VAT is being applied to about 550 goods divided into two categories: 4 per cent and 12.5 per cent. The new tax will replace the present sales tax structure, and may apply to both CNG and its raw material natural gas. Diesel and petrol will not be subject to VAT; they will continue to be taxed under the current regime. In Delhi, where currently there is no sales tax levied for CNG or natural gas, if VAT is applied, it would change the price difference between CNG and diesel, effectively promoting the latter. The Empowered Committee may decide to tax CNG, but state governments can still opt for exemption. States do possess the flexibility to choose 10 VAT exempt items from a list of 46. The point is: can CNG out- compete other interests?

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