GST roll-out: Why electricity should have been brought under the new tax ragime

Power generation has grown rapidly in recent years. There has been a considerable shift from fossil fuel-based energy generation to clean and renewable sources of power generation, which is evident by the growing share of renewables in the current power generation system.

For the power sector in India which currently enjoys a multitude of tax concessions and exemptions, the advent of GST is going to bring about an unfamiliar change. It will also bring about a shift in the trajectory of the sector and its growth. The success of the transition to a new tax regime will inadvertently depend upon how well the industry as well as individuals prepare in adapting to this change.

The primary effect of exclusion of power sector from the GST regime will be felt by the power generators who will not pay GST rates as output tax. However, inputs will be taxed under GST. Therefore, this disbalance of not being able to claim tax credits will result in higher cost of electricity production.

The decision to tax coal at the lowest rate of 5 percent is a positive move and will bring down cost of fuel considerably impacting the entire value chain. However, the electric meters have been put under the 18 per cent tax bracket, which will increase the cost for new customers.

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