Faced with consistent and strong representations from the gas and power producing companies in the state, the government is likely to review the 20 per cent sales tax on natural gas.

Operators of the two major upcoming LNG projects and even the government-owned Gujarat Electricity Board have been demanding a reduction in the sales tax.

The government is expected to sort out the issue during the next budget.

"We have been receiving representations from the companies in this segment. Now with the vision of making Gujarat the gas capital of India, we are considering a review of the existing 20 per cent sales tax on gas," state finance minister Vajubhai Vala said on Tuesday.

"The review cannot be taken up before the next budget in March 2004. Shell Hazira and Petronet LNG Ltd are setting up LNG projects in Gujarat. The gas production will go up considerably. We want to give an impetus to the progress in this sector by imposing a lower sales tax in the next fiscal year," he said.

Shell Hazira Private Ltd, a subsidiary of The Royal Dutch/Shell, is setting up a five metric tonne per annum LNG terminal at Hazira in Surat district at a cost of $600 million. The terminal is scheduled to be operational by the end of 2004.

Petronet LNG is also setting up a similar capacity LNG terminal at Dahej in Bharuch district. This is also scheduled to be operational in the next fiscal year. It is learnt that both the companies have been representing the higher sales tax issue before the government along with other companies.

"The state government has waived the sales tax on electricity. It has also waived the tax for various sectors. Why can't they reduce the tax on gas? The government has spent crores of rupees in Vibrant Gujarat summit to attract investors to the state. Slashing the tax will help the state attract many investors. The government is still reluctant to reduce the tax on gas and petroleum products," a GEB official said.

"Because of the heavy tax burden, we are forced to buy gas at a higher price from the companies. This adds to our losses every year. If the sales tax comes down, we can buy gas at cheaper rates. This will help us get rid of our mounting losses to some extent," the official said.

GEB buys a huge amount of gas from private companies and the Gas Authority of India Ltd for electricity production. A source in Shell Hazira said, "Carrying gas from Gujarat to other states attracts only four per cent sales tax under the rules. But sales of gas inside Gujarat will attract 20 per cent sales tax. This will hamper industrial growth. When gas supply is going to increase soon, high sales tax will only discourage new industries."

"Industries having base outside the state can buy gas produced in Gujarat at cheaper rates, taking advantage of a lower sales tax. This is against the interests of the industries and consumers," he said.

Minister of state for petroleum and energy Saurabh Dalal said, "This is an issue to be handled by the finance department. We are working out a plan. We may be able to slash the tax in the next budget."

An official of Gujarat Gas, which has a strong network in south Gujarat, said, "We have taken up the matter with the state government several times but so far nothing has happened. We are not talking for abolishing of the sales tax. We just expect a review of the existing tax structure."