Inter-ministerial committee pitches for higher tax on coal imports

Recommends rationalising GST compensation cess on coal

An inter-ministerial committee (IMC) led by the coal ministry on Thursday suggested that GST compensation cess should be imposed on an “ad valorem” (according to value) basis so that it is directly related to the price and quantity of coal, instead of a flat rate of Rs 400 per tonne.

The report, released by Union Coal Minister Pralhad Joshi, notes that there should be a higher cess on imported coal than on domestic to slash shipments of the polluting fuel.

The report titled ‘Strategy Paper on Coal Import Substitution’ said the current GST compensation cess is at a fixed rate of Rs 400 per unit. GST compensation cess is based on tonnage and not on the gross calorific value (GCV) of coal. The imported coal has a high GCV value (5000-6000 Kcal) in comparison to domestically supplied coal (3000-3500 Kcal), the tax incidence on imported coal on a per kilocalorie (Kcal) basis is less in comparison to domestic coal, the report said.

 “GST compensation cess may be imposed on ad-valorem basis wherein the cess would be directly related to the price and quantity of the coal, instead of the present levy of a fixed amount of Rs 400 per tonne,” the report noted.

During the financial year (FY22), the GST compensation cess collected on the import of coal was around Rs 8,359.15 crore against the total import value of Rs 2,287,42.44 crore. During the same period, GST compensation cess collected on domestic coal (CIL & SCCL) was around Rs 29,096.8 crore against the approximate value of Rs 1,172,51.40 crore, according to the report. According to the committee, the cess is increasing the price of electricity by around Rs 0.24 per unit.

 GST compensation cess is levied on coal production. It was earlier called coal cess and the proceeds from the cess were accumulated into the National Clean Energy Fund which was disbursed for green energy projects. It was subsumed under the GST umbrella after it was launched in 2017.

“Imposition of GST compensation cess on ad-valorem basis would also give the benefit of any future increase in the price of coal to the exchequer. The appropriate percentage of GST compensation cess on coal may accordingly be decided so that the same can be revenue neutral and there is no loss to the exchequer,” said the report.

Among other suggestions for reducing the import of coal are building a multi-modal logistics network for the transport of coal and more coal-washing facilities, especially for non-power consumers. The report has also suggested the blending of coking coal by the metal sector to bring its share down in total imports. For non-coking or thermal coal, the report has recommended that imported coal-based power generation units start using domestic coal by tweaking their units.