Tax conundrum in power

The finance ministry will have to walk a tightrope between protecting the interest of domestic power equipment manufacturers and boosting generation capacity in the budget.

At present, projects of less than 1,000 megawatt of generation capacity have to pay a 5 per cent duty on the import of equipment, while those above 1,000MW enjoy duty-free imports.

The plan for a higher import levy is aimed at providing a cushion to domestic manufacturers such as Bhel and L&T, which are grappling with stiff competition, especially from Chinese entities.

Private power producers such as Reliance and the Tatas have opposed the government’s move to impose higher duties on equipment import saying it will lead to higher tariffs. “We sincerely believe that any step at this stage, which increases the cost of power for consumers and leads to delays in capacity addition, will be very detrimental to the sector,” Ashok Khurana, director-general of the Association of Power Producers, said.

Top executives of private power firms, during their meeting with Prime Minister Manmohan Singh, highlighted problems such as acute fuel shortages, pricing issues related to imported coal, delay in environment and forest clearances, funding problems, worsening health of distribution companies and a proposal to impose a duty on imported power equipment.

The country’s power equipment market is worth about $22 billion in 2011-12, the Indian Electrical and Electronics Manufacturers’ Association said.

While the power ministry is said to have recommended 19 per cent import duty on equipment for large projects, the commerce ministry favoured a duty of 24 per cent.

The cabinet recently deferred a proposal to levy 5 per cent customs duty, 10 per cent countervailing duty and 4 per cent special additional duty against a 10 per cent customs duty and 4 per cent CVD, which was recommended by the Arun Maira Committee and backed by the department of heavy industries.
Source: The telegraph

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