Asset monetisation: NITI seeks GST waiver for 'rights to use' transfers

To enable easier monetisation of assets, the NITI Aayog may seek a waiver of goods and services tax (GST) on ‘Rights to Use’ while transferring an asset to a new entity, following requests from power sector PSUs, officials in the know said.

At present, the transfer of ‘Rights to Use’ is considered a supply under the GST regime, and attracts 18 per cent tax in the hands of the new entity or special purpose vehicle (SPV). For monetisation, assets are carved out into a separate entity or SPV by transferring rights. Such assets are housed in the parent entity’s balance sheet, and need to be separated for monetisation.

With the Rs 6-trillion National Asset Monetisation Pipeline (NMP) rolled out last August, public sector enterprises have realised about Rs 26,800 crore, with another Rs 15,000-16,000 crore to be realised soon by the roads ministry. Some public sector undertakings (PSUs) have reached out to the NITI Aayog, the policy think tank managing the NMP, to seek a GST waiver on transfer of assets. 

The 18 per cent GST is seen as a hurdle in acquisition due to additional costs. The NITI Aayog may soon approach the finance ministry to seek a waiver.

While transferring an asset to a separate entity, its value is computed based on its future cash flows. An 18 per cent GST liability will be recovered from the new investor, leading to an additional expense for the private sector participant. However, the intrinsic value of the asset would not include the GST component, experts said. Such a waiver is being sought to make propositions attractive for investors.

The NMP document states that monetisation of assets may require a scheme of arrangement or demerger which may pose associated transaction overheads such as continuation of tax holiday on assets, capital gains tax, stamp duty, among others, due to asset transfer. Towards this, the last Union Budget had provided a tax waiver under the Income Tax Act. The NMP document had also suggested structuring the transaction as revenue rights as against transfer of assets into an SPV will be tax efficient.

Imposing GST on the transfer of ‘Rights to Use’ puts an additional burden on investors, and restructuring of the power generation ecosystem would also need replica amendments in GST laws so as to provide a tax neutral status, said Rajat Mohan, senior partner at AMRG & Associates.

Such GST waiver cannot just be provided to one specific sector, said M S Mani, partner at Deloitte India. “Supply of intangible assets attracts 18 per cent GST and any exemption from the same for a specific sector or to deal with a specific situation would lead to many other demands for similar treatment,” Mani said.

Besides this, for monetising power transmission assets through infrastructure investment trusts (InvIT), the NITI Aayog has suggested power companies to explore making rights-based InvIT a transmission licensee. At present, power PSUs do not have regulatory powers to grant transmission licences, and investors are required to seek the Central Electricity Regulatory Commission's nod.

State-owned Power Grid Corporation of India (PGCIL), the largest power transmission company, launched its PGInvIT in April 2021, becoming the first public sector company to do so. It has sought clarity on the GST rate in order for its InvIT to acquire more assets.

Power Grid had offered five “initial portfolio assets” at an enterprise value of Rs 10,384 crore for the PGInvIT. For the coming financial year, PGInvIT has identified three more assets of Power Grid.