Bringing cheers to the industries in the state, the Gujarat government has decided to slash the sales tax on liquefied natural gas to 12 per cent from the existing 20 per cent.

Though the industries in the state were keen on using LNG as fuel instead of the costly naphtha, the high sales tax had acted as an impediment.

The five million metric tonne per annum (MMTPA)-capacity LNG facility developed by Petronet LNG Ltd (PLL) at Dahej is finally commissioned and Shell India's LNG terminal will be ready for commercial commissioning in a year.

Against this backdrop, the decision of the state finance department to slash sales tax, according to industry experts, will help the LNG manufacturers sell the gas to more clients in the state.

It will also help the industries buy LNG as fuel at a lower cost.

"We have been actively pursuing the sales tax cut with the state government. The decision comes even before a week after we signed a sales agreement with GAIL for buying LNG. The government decision will help us save money. We can also resell LNG to our customers at prices lower than estimated earlier," said C K Koshy, chairman of the Gujarat State Petroleum Corporation (GSPCL).

"This decision will also benefit the industries in Gujarat who may buy LNG as a cheaper fuel," Koshy said.

Koshy said the reduction in sales tax will prevent industries in the state from going out of Gujarat to take advantage of lower tax. Most other states levy a lower sales tax on LNG. With the cut in sales tax, LNG prices in Gujarat will come down by $0.80-0.90 per MMBTU.

B S Negi, director (technical), GAIL, who was in Ahmedabad on last Saturday, had also requested the state energy and petrochemicals minister to reduce the sales tax on LNG.

"The tax was too high for the buyers and the decision to cut it will definitely benefit all concerned. The volume of trading within the state will increase and the state government will get almost the same amount even after levying a lower tax," said Negi.

Minister of state for energy and petrochemicals Saurabh Dalal said the cut will cost the state exchequer Rs 200 crore (Rs billion) per annum. "We were getting requests from various industries to slash the tax. After getting a clearance from the finance department, we have decided to lower the tax. We will soon announce the date of implementation of this decision once it is cleared by the Cabinet," Dalal said.

Sanjay Gupta, chief executive officer (infrastructure), of Adani group, which recently forayed into gas distribution, said, "This is a commendable decision. This will help consumers like us buy large quantities of LNG at a lower price. Now we want the Union government to bring LNG under the category of declared goods like crude oil which will attract a sales tax of only 4 per cent."

Though the ministry of petroleum and natural gas decided to bring LNG under the declared goods category, the Union finance ministry had earlier turned down the proposal.

Director (finance) of Petronet, P Dasgupta, who supported the demand made by Gupta, said, "In fact, for the benefit of the power and the fertiliser sectors, the government should consider bringing LNG under the declared goods category. This will help LNG sellers like us offer the gas at competitive rates and expand the market."