'Declared goods' status may cap sales tax on natural gas at 4 per cent

The Empowered Committee of state finance ministers on value-added tax (VAT) is likely to consider giving 'declared goods' status to natural gas that will cap sales tax on the fuel at a uniform four per cent in all states.

The high-powered panel on VAT, headed by West Bengal finance minister Asim Dasgupta, will meet in Srinagar and discuss, among other issues, granting 'declared goods' status to natural gas, official sources said.

At present, natural gas or regassified LNG attracts different rates of sales tax and is as high as 20 per cent in some states. Other fuels such as coal and crude oil, on the other hand, already enjoy the 'declared goods' status and attract only up to four per cent sales tax in all states.

"As a fuel, natural gas has to compete with coal and oil, which enjoy declared goods status under Central Sales Tax Act, 1956... Gas should also get same benefits," an official said.

Since gas is a key input in sectors such as power and fertiliser, high sales tax adversely affects consumers, the official said, adding, reduction in sales tax would boost the natural gas sector and help develop a National Gas Grid.

The VAT panel is also expected to work out the exact details of items that would be exempted from service tax to be levied by states, sources said.

The panel had, at its meeting on 5 May, decided to exempt 44 services consumed by the poor such as health services offered by government bodies and individual performance in education and sports from service tax. As part of the deal with states to cut central sales tax from four per cent to three per cent this year, the centre had earlier decided to give them power to impose tax on 44 items.