Leaving Electricity Out of GST Regime Costs Indians Nearly Rs 30,000 Crore a Year
Indian consumers will end up shelling out nearly Rs 30,000 crore extra every year towards payment for power consumption unless electricity is brought under the Goods and Services Tax (GST) regime. The reason? Power producers cannot claim credit for taxes and cess paid on coal and coal transportation due to exclusion of electricity from the new indirect tax regime.
The applicable GST rate on coal is 5%. Furthermore, the dry fuel attracts clean cess of Rs 400 per tonne. In addition, 5% GST is also payable on transportation of coal by trains.
India’s power sector consumes more than 600 million tonnes of coal every year. For example, in 2016-17, Coal India (CIL) and Singareni Collieries Company Ltd (SCCL) together supplied nearly 472 million tonnes of coal to power plants while 150 million tonnes of the dry fuel was imported by the industry to meet the domestic fuel shortage.
Even if we leave aside coal produced by captive mines, the total coal consumption still aggregates to 622 million tonnes. If we take 622 million tonnes of coal consumption as an indicative figure, the annual cess liability on purchase of coal for the sector alone works out to Rs 25,000 crore.
And if we consider the Rs 1,100 per tonne price of CIL’s G9 coal, a grade that is commonly used by the power sector in India, as the benchmark price, the per tonne GST liability comes at Rs 55. At this rate, annual GST liability on coal purchase works out to Rs 2,596 crore.
Then, assuming that out of the 470 million tonnes coal supplied by CIL and SCCL to the power sector annually, 300 million tonnes of coal is transported by rail over a 600-km distance, the GST liability on coal transportation comes at Rs 1,500 crore.
If we add liabilities on account of GST and cess on coal and GST on transportation by rail, the payouts by generators total at Rs 29,096 crore. This entire amount is passed on by generators to end consumers as there is no way they can recover taxes and cess paid on coal and coal transportation.
The GST regime was rolled out in July 2017 by subsuming most of the central and state indirect taxes. But crude oil, natural gas, diesel, petrol, aviation turbine fuel and real estate, besides electricity, remain outside the ambit of the indirect tax regime.
Besides this, power consumers have to pay electricity duty which varies from state to state. Electricity duty is charged on consumption and so, the higher the consumption, the higher the liability for consumers. In some states, it is also applied as percentage of total charges (electricity usage and fixed charges) and in some states both are applicable. Electricity duty is as high as 20% in some states.
The Bharatiya Janata Party-led NDA government has promised to roll out its flagship scheme of ‘Power for All’ by 2019. It is offering free connections to poor households under the recently-launched Saubhagya scheme to increase electricity coverage.
But the cascading tax burden on consumers due to the exclusion of electricity from GST is at odds with the Modi government’s stated plan to improve access to electricity for lower-income groups, especially in rural areas where consumers are highly price sensitive.