Companies operating in the power sector have made a strong case for the inclusion of power, coal and natural gas in the goods & services tax (GST) regime to subsume multiple taxes and thereby reduce the cost of power projects and the per-unit tariff. They say the power transmission & distribution (T&D) sector should be granted the infrastructure industry status and that all related tax benefits available to other infrastructure sectors be given to this sector as well.
In the run-up to the Budget 2016-17, industry representatives said even though generation is exempt from CENVAT, excise and value-added tax, taxes on power generation equipment and other inputs remain embedded in the cost of power. The overall impact of present taxation regime at both Central and state levels leads to higher price of power.
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Ashok Khurana, director-general of Association of Power Producers, explained that taxes on domestic coal are at 27-28 per cent while on domestic natural gas it is at 19 per cent. This apart, service tax is levied at 14.5 per cent on input service availed such as engineering, procurement and construction; operation and maintenance services; and electricity duty is levied at one per cent of cost of generation and 17-20 per cent across states on consumption of power. "It is estimated that a GST rate of 18 per cent for the power sector could result in 15-20 per cent reduction in retail tariff. Further, a cut in power cost will also improve payment by end-consumers and reduce incentive for theft and losses. This will also help distribution utilities to reduce their problem of revenue deficit," said Khurana.
According to Vimal Kejriwal, managing director and chief executive of KEC International, there will be no difference between inter and intra states with the launch of GST and the benefit of availing central sales tax will be done away with. “This is expected to result in lesser movement of goods, thereby reducing logistics costs. The government should not put electricity in the exempted category of goods under GST regime so that the cascading impact and burden of tax will not be there on the ultimate consumers of electricity.”
In view of the depreciation of the yuan, Kejriwal observed that Chinese exports have become relatively cheaper, causing a lot of stress as they directly impact Indian exports. He suggested that the government should increase export incentives or reduce import duties on raw materials.
Reliance Power spokesperson hoped that the inclusion of power and coal sectors in GST regime will result in lowering of bulk power, retail tariff and support the Make In India initiative. He suggested that the government should announce extension of e bid LNG scheme by another rive years on the back of lower crude prices, extend Ujwal Discom Assurance Yojana (UDAY) scheme to private owned discoms. He said that the government should announce concrete steps to implement recommendations of the Kelkar Committee on PPPs and give momentum in infrastructure sector.
Further, Deloitte Touche Tohmatsu India partner (consulting) Debasish Mishra said the government in the ensuing budget must ensure that there are no hindrances to the ambitious target of achieving 175 Gw of renewable energy (RE) capacity by 2022. Impact of GST should not increase in the capital costs in RE sector. "Government's focus in 2016 would remain on proper implementation of the Ujwal Discom Assurance Yojana (UDAY) scheme for a sustainable turnaround of the distribution utilities and hence the financial health of the power sector. All other initiatives in power sector depends upon the success of this," he noted.