GST: competitiveness to quell power costs:

GST: competitiveness to quell power costs:

Context

Analysis of GST impact on power sector

the Central and State Governments have always given special tax treatment to the power sector in the past. But post GST, that trend may not continue.

Negative impact

• The GST Act has kept electricity out of its ambit while keeping the capital goods and services consumed by the sector under its coverage. Therefore  Power generating companies will not be able to claim input tax credit i.e, they cannot pass on the tax they paid for inputs to the consumers. There is also no benefit of input tax credit in respect of state VAT So, the cost of power will come embedded with taxes on power generation equipment and other inputs.
• Cost of generation in renewable sector will increase by 5-10%, due to the increased tax incidence on  the components that go into the manufacturing of solar PV systems and wind generation systems.
• According to an estimate by the Ministry of New and Renewable energy, the cost of setting up solar off-grid projects will rise by 16-20%, after GST. There will be an about 16% increase in solar PV grid installations and a 11-15% jump in the cost of setting up of wind energy projects.
• In biomass and hydro projects, the increase in project cost will be about 11-14% and 11% respectively.

Positive impact

• Domestic coal, has been brought under the 5% tax slab — in the past, the tax slab for coal varied from 11% to 12%. It is estimated that the variable cost of generation for coal-based power companies will be decline by 5-6 paise a unit, or about 1% of the current open market tariff.
• For the electrical and the lighting sectors that will enjoy reduction in indirect taxes — from about 30% to 18%.

Why there is a need to rationalise GST impact?

• India is the world’s third-largest producer and fourth-largest consumer of electricity. In the last couple of years, the power sector witnessed record capacity addition taking the installed generation capacity to more than 330 GW.
• India has announced a major initiative to achieve an all Electric Vehicle Regime by 2030. the GST at 12% for Electric Vehicles compared with 28% for diesel /petrol vehicles and hybrids is a major step. this will give a major boost for the demand pick-up. With more and more charging stations coming up, electricity demand should go up by a few hundred gigawatts by 2030.

conclusion

the government needs to rationalise the tax structure and pave the way for the seamless flow of input tax credit, eventually market competitiveness of power generators — public or private, conventional or renewable — could absorb the increase, relieving consumers of the burden