Gujarat is the biggest consumer of gas in the country, accounting for 40% of the total gas consumed, but it is also the state which has levied the highest rate of Value Added Tax (VAT) on Compressed Natural Gas (CNG).

According to official sources, Gujarat has levied 15% VAT on CNG sales, significantly higher than Maharashtra where the levy is 12.5%, Tripura (12.5%) and Haryana where VAT on CNG is only 5%. The VAT on CNG in Uttar Pradesh is 13.5%.

There is no VAT on CNG in New Delhi and, in fact, the only state where VAT on CNG is comparable with Gujarat is Andhra Pradesh, where the levy is 14.5%. "Most of the other states have VAT of around 12.5%. In terms of VAT on CNG, Gujarat ranks among the states with the highest VAT, if not the highest," said a CNG expert. The selling price of CNG in Gujarat is between Rs37-38 per kg, as compared with less than Rs30 a kg in New Delhi.

"CNG consumers in Gujarat are paying close to 30% as levies, including VAT and Central Excise, which is high by any standards. There is an urgent need to reduce the levies," says an official of a City Gas Distribution (CGD) company.

There have been frequent demands for a reduction in VAT on CNG, but the Gujarat government doesn't seem to be in the mood to cut the tax rates. "There is no plan to reduce the VAT levied on CNG," state energy minister, Saurabh Patel said categorically. Patel instead put the blame for the high CNG rates in Gujarat on the Centre.

"Gujarat is totally dependent on imported LNG to meet its gas requirements. CNG rates in Gujarat will go down by as much as 30% if Centre allocates cheaper D6 gas to the state," he said.

Experts, however, argue that the highest VAT rate on CNG in Gujarat, a state which likes to project itself as a gas-based economy, is simply not acceptable. State government officials, though, point out that the Centre too charges 14.42% Central Excise duty (including 3% education surcharge) on gas. However, the excise duty is uniform across the country.

It is worth mentioning here that CNG prices in Ahmedabad, which have already gone up in the past few months, are projected to increase to Rs46-47 per kg by March 2012, and touch Rs50 per kg by June or July next year.