Centre lowers GST rate on Ethanol from 18% to 5%, aims to reduce dependence on gasoline

The Centre on Thursday reduced the Goods and Services Tax (GST) rate to 5% from 18% on ethanol meant for blending under the Ethanol Blended Petrol (EBP) programme. The GST rate has been lowered in order to promote ethanol blending, Minister of State for Petroleum and Natural Gas, Rameswar Teli said in the Lok Sabha. 

The procurement price of ethanol produced from sugarcane-based feedstocks like C&B heavy molasses, sugarcane juice, sugar, sugar syrup is fixed by the Government on an annual basis, while that of food grain-based feedstocks is fixed by Public Sector Oil Marketing Companies. 

According to the Government of India, "The Ethanol Blending Programme (EBP) seeks to achieve a blending of Ethanol with motor spirit with a view to reducing pollution, conserve foreign exchange and increase value addition in the sugar industry enabling them to clear cane price arrears of farmers." 

Centre aims to reduce dependence on imported gasoline

With fuel prices hitting historic highs in 2021, the move can be seen as an attempt by the Government to scale to the use of ethanol and reduce the nation's dependence on imported gasoline. 

"The measures taken by the Government to reduce dependence on imported gasoline include a number of policy initiatives for increase in domestic crude oil production by generating quality geo-scientific data and its easy access, awarding new exploration acreage, expediting production from new development acreages and focus on production maximization from existing production acreages," an official release of the Ministry of Petroleum & Natural Gas read.

"It has promoted usage of biofuel in the country by notification of the National Policy on Biofuels (NPB) - 2018 which allows use of multiple feedstocks for producing bio-ethanol for increased supply of ethanol for blending with petrol," it added.

According to the statement, the Centre is encouraging initiatives on the supply side of ethanol to promote the Government to advance the target of 20% ethanol blending in petrol from 2030 to 2025-26. For achieving this target, the Centre has also notified Pradhan Mantri JI-VAN Yojna for promoting Second Generation (2G) ethanol production by providing financial support.

Notably, the development also comes amid the strong demand for bringing petroleum products under the GST. The exclusion of fuel from GST results in a huge blockage of tax credits on account of excise duties, VAT and other cesses levied on them.