Natural gas under GST could improve tax inefficiencies, say brokerages; GAIL, Mahanagar Gas to benefit

The Petroleum Secretary Pankaj Jain said that solving the taxation problem would lead to the rise in usage of natural gas.

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26 Aug, 2025 12:21

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The government could be reviving talks to bring natural gas under the purview of the Goods and Services Tax (GST), according to reports.

The timeline for the implementation of the same is uncertain, however, if implemented, there could be a series of benefits, said international brokerage Citi.

Currently, gas sees a slew of taxes: state VAT, central sales tax and central excise duty. The gas value chain has many input and output taxes, especially as a result of the difference in taxation between states. Switching to GST would improve tax inefficiencies.

Citi noted that the gas/LNG that is bought in Gujarat, but sold in other states sees 15 percent input tax. There is no VAT imposed on CNG in Delhi, but in Maharashtra, Gujarat and UP, the VAT imposed is between three to five percent.

Therefore, Citi said it was constructive on the gas sector, with GAIL (India) and Mahanagar Gas as its top picks in the energy sector, as they could see the highest benefits from the proposed change.

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Foreign brokerage Jefferies said as a result of the move, GAIL could benefit from faster volume growth and improved profitability on the LPG front. As a result, its consolidated EBITDA could rise around two percent.

On the other hand, CNG companies are likely to see limited benefit. Jefferies retained its 'underperform' rating on GAIL (India), Gujarat Gas and Petronet LNG.

On May 30, the Petroleum Secretary Pankaj Jain said that solving the taxation problem would lead to the rise in usage of natural gas. The government is cautiously optimistic about including NG under GST.

"One big challenge for us continues to be the taxation on gas. Domestic taxes on natural gas are still a work-in-progress. That is affecting the use case for natural gas," he said.

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