On Wednesday, Prime Minister Narendra Modi said that his government would draw natural gas into the ambit of our goods and services tax. As GST applies only to added value, this shift would rescue the refined product at its point of use from a cascade of taxes, lower its final price, and thereby help raise India’s usage intensity as part of a larger plan to tilt our energy mix towards a relatively clean fossil fuel.
Gas-fired power plants threaten our planet less than coal-burning generators. While Modi did not lay out a timeline for the switch, his declaration of intent could set the stage for a far bolder move to place all hydrocarbons under GST, a taxation system that is yet to be universalized. For GST to serve its envisaged purpose, it must cover all goods and services. But tax reformers have found it difficult to scrape off the detritus of various taxes that fuels have been slapped with down the decades.
Like the consumption of liquor, which has also been kept out of India’s GST regime, demand for fuel is relatively inelastic. Price hikes do not reduce offtake much. This makes it an easy target for revenue-raising. Governments at both the central and state levels, however, should give up this addiction.