Discussion ongoing between PNGRB and various state governments regarding the adjustment of Value-Added Tax (VAT) on natural gas and Compressed Natural Gas (CNG)

The Petroleum and Natural Gas Regulatory Board (PNGRB) has been actively promoting discussions with high-level officials in various states, including Himachal Pradesh, Uttarakhand, Madhya Pradesh, Uttar Pradesh, and others, to address key policy and operational issues critical to the city gas distribution (CGD) sector.

At the heart of these discussions lies the rationalization of Value Added Tax (VAT) on natural gas and Compressed Natural Gas (CNG). The disparities in VAT rates across states create an uneven playing field, discouraging investment in states with higher tax rates and affecting end-user prices for both domestic and commercial/industrial consumers.

Currently, some states levy VAT as low as 5% on natural gas, while others impose rates exceeding 20%. This substantial variation in costs has been a point of concern, as it hinders uniform growth and affordability within the ecosystem.

Over the past two years, PNGRB's efforts have led to VAT reductions on natural gas in several states, such as Andhra Pradesh, Assam, Bihar, Chhattisgarh, Rajasthan, Dadra & Nagar Haveli, Daman & Diu, and more. For instance, Bihar reduced taxes on CNG and natural gas by lowering the VAT on CNG from 5% to 0% and on natural gas from 12.5% to 5%. This move is expected to benefit about 1.9 crore households and 38.41 lakh potential PNG consumers in Bihar.

The rationalization of VAT on natural gas and CNG is considered crucial for an inclusive market and affordable access to cleaner fuels. By reducing VAT, states can encourage the adoption of CNG vehicles, as seen by the consistent rise in CNG vehicle adoption over the past two years. The number of CNG vehicles on the road has risen from 58.61 lakh in March 2023 to 81.95 lakh by March 2025.

Moreover, the reduction in VAT on natural gas and CNG would lead to higher gas consumption in India, contributing to a more sustainable and environmentally friendly energy landscape. The selling price of CNG in India varies from roughly Rs 74.60 per kg in Puducherry to Rs 103.80 in Uttarakhand, while the selling price of Domestic PNG in India varies from Rs 45 per standard cubic meter (SCM) in Tripura to Rs 63 in Uttarakhand.

It's essential to note that VAT on natural gas, piped natural gas (PNG), and compressed natural gas (CNG) is a significant source of revenue for states. However, PNGRB's advocacy for rationalization aims to strike a balance between revenue generation and the promotion of a cleaner, more affordable, and more accessible energy sector.

In FY25, around 21 lakh new domestic PNG connections were added, contributing to an 11% increase in gas sales pan-India. Additionally, approximately 1,206 CNG stations were added across the country in FY25, further boosting the adoption of CNG as a cost-effective and environmentally friendly transportation alternative.

PNGRB has also been actively promoting the adoption of Piped Natural Gas (PNG) as a clean and sustainable fuel. The rationalization of VAT on natural gas and CNG is a significant step towards achieving this goal, paving the way for a more inclusive and sustainable energy future for India.

Discussion ongoing between PNGRB and various state governments regarding the adjustment of Value-Added Tax (VAT) on natural gas and Compressed Natural Gas (CNG)