Now, central push for reducing VAT on natural gas for fertilisers

VAT reduction completely falls under the domain of state governments.

After reducing natural gas prices, all efforts are now on to reduce the tax on it, especially for fertilisers.

According to sources, the Expenditure Finance Committee (EFC), headed by the Expenditure Secretary, has recommended a reduction in VAT (value-added tax) on natural gas supplied to fertiliser plants. On the basis of this recommendation, the fertiliser ministry is likely to write a letter to all states.

Natural gas accounts for about 80-85 percent of the total cost of fertilisers, especially urea. But VAT is applicable on natural gas in states. Because of this, cost and fertiliser subsidies increase.

According to an estimate, the subsidy to the tune of about Rs 12,500 crore increases annually on account of VAT alone. Earlier, the central government repeatedly pressured states to bring natural gas under the GST regime. But most of the states are not yet ready for this. That's why now efforts have started to reduce VAT on natural gas for fertiliser plants.

EFC meeting

According to sources, a meeting of the Expenditure Finance Committee (EFC)  was held recently, and officials from the Ministry of Finance and Ministry of Fertilisers attended it.

“In this meeting, it was agreed that there is no justification for levying VAT on natural gas supplied to fertiliser plants because, on the one hand, the central government is giving subsidies on fertilisers, and, on the other, state governments are imposing taxes,” sources said.

That's why states should completely remove or reduce VAT. Based on the recommendation of EFC, the Ministry of Fertiliser is now preparing to write to the states.

VAT states levy on natural gas

VAT on natural gas by states ranges from 3 percent to 24.5 percent. Andhra Pradesh has the highest, at 24.5 percent. Gujarat charges 15 percent, and Assam, Karnataka and Uttar Pradesh 14.5 percent.

While it is 14 percent in Madhya Pradesh, and 10 percent in Rajasthan, Punjab levies a 3 percent VAT and 10 percent surcharge.

More importantly, in West Bengal and Uttar Pradesh, an additional tax is imposed on natural gas supplied to urea plants. For example, if natural gas is supplied to other industrial plants in West Bengal, 5 percent VAT is levied. But if the same natural gas goes to a urea plant, 14.4 percent VAT is charged.

Similarly, for the rest of the industry in Uttar Pradesh, a 10 percent VAT is levied on natural gas, while for urea plants, this tax increases to 14.5 percent.

VAT reduction completely falls under the domain of state governments.