VAT on natural gas reduced from 14 to 3% in Punjab

Chandigarh, October 25: In a move that will scale up revenue generation significantly and reduce environmental pollution by encouraging industry to shift to natural gas, the Captain Amarinder Singh led Punjab government on Friday notified reduction in VAT on Natural Gas, in Gaseous State other than Compressed Natural Gas, from 14.3% to 3%.

With this, Punjab has become the state with the lowest VAT on natural gas in the northern region, also comprising Haryana, Himachal Pradesh, Rajasthan, Delhi and Chandigarh.

The notification, issued in pursuance of a decision taken earlier by the state government, will incentivize the industrial units in the state to switch over from polluting fuel to the environment-friendly natural gas, thus reducing industrial pollution in the state. Also, with the reduction in the rate of VAT, the sale of natural gas in Punjab is likely to increase substantially, thereby yielding increased revenue, according to an official spokesperson.

Presently, the rate of VAT on Natural Gas is 13%+10% surcharge i.e. 14.30% in Punjab. The major consumer of gas is National Fertilisers Limited (NFL), which uses the gas at its plants at Bathinda and Nangal. This decision will also give a boost to many industrial units in Gobindgarh and Ludhiana to replace conventional fuel.

It may be noted that NFL is purchasing natural gas worth Rs. 300 crore per month from Gujarat, on which CST of Rs. 45 crore per month at the rate of 15% is being paid to that state. With the cut in VAT  on natural gas, the natural gas supplier will start billing of natural gas to NFL from Punjab, which can lead to increase in PVAT collection on Natural Gas.

Before March 2015, VAT rate on Natural Gas was 5.5.%+10% surcharge i.e. 6.05%. From March 2015 onwards, VAT rate on Natural Gas was increased from 6.05% to 14.3%. Due to increase in VAT rate, NFL started interstate billing of Natural Gas, due to which VAT collection on Natural Gas decreased. The VAT collection on natural gas from the years 2014-15 to 2018-19 came down considerably.