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India's fuel ethanol industry sees marginal impact from the new GST

Singapore — India's new Goods and Services Tax has been officially rolled out on July 1, which brought up the tax on fuel ethanol to 18%. However, the industry sees marginal impact from the higher GST.

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Before the implementation of new GST, fuel ethanol was subjected to 12.5% central excise in India. Additionally, some states also imposed interstate duty of Rupee 3-5/liter (5-8 cents/liter) on transporting ethanol.

The new GST regime replaces the central excise tax, value added tax and other state taxes with one uniform tax, which is 18%.

"It is just some marginal increase in tax. Actually, the tax rate is higher in certain states and lower in other states. So I would say overall, the impact is not very significant," said a market source with a major Indian oil company.

In 2016, fuel ethanol production was estimated at 1.15 billion liters, according to Platts Kingsman data, resulting in an actual blending rate of around 4.07%.

For 2017, Platts estimates gasoline consumption at 32.257 billion liters, while Platts Kingsman estimates ethanol consumption to be 720 million liters, resulting in a forecast blending rate of 2.23%.

So far, around 50% of the total fuel ethanol consumption had been lifted.

"The OMCs [oil marketing companies] have finalized a quantity of 807 million liters fuel ethanol already, and mills were able to submit another 432 million liters by June," a Kingsman ethanol analyst said, adding that she has not seen any reaction from mills because of the change in GST.

India has its nationwide E5 (petrol blended with 5% of fuel ethanol) mandate in place since 2008, and targets to increase to E20 by the end of 2017, according to the National Policy on Biofuels approved by Indian government on December 24, 2009.

Indian legislation decrees that OMCs must only source fuel ethanol from domestic producers. Therefore, the actual ethanol blending rate in India depends largely on availability of domestic sugar molasses in any given year.

--Xiaojuan Gao,
--Edited by Irene Tang,