GST impact on Power Sector

At present, there are no indirect taxes on the output of the power sector, except electricity duty levied by states. As a result, all input taxes (such as capital expenditure on setting up power plants and duties and taxes on coal) are a cost to power companies. If power is kept out of the ambit of GST and there is no concessional GST on the input side (like the 2% CST and service tax of 12.36%), the GST paid on procurements will significantly increase the cost for this sector. For power plant set up mostly goods are imported and the indirect tax cost by way of sales tax is Zero, whether purchased directly or through contractors by way of high seas sales. 

Similarly for domestic procurement of goods under CST Act, the tax cost could be zero(purchased from zero CST States) by way of sales in transit.  Only a miniscule percentage of goods are locally procured.  Of course excise duty and service tax will merge into GST but each company has to make individual cost benefit analysis of such inputs to arrive at the net negative impact of GST; provided such benefits are passed on by the suppliers.

As opined in my earlier takes, power has been kept out of GST net i.e. it is exempt from GST.  It is bound to inflate the electricity costs – experts feel by more than 8 percent keeping in view the GST rate for goods used in this sector.  Power producing sector – both renewable and conventional- will have to pay total GST whenever goods are procured for generation or distribution or transmission of electricity and also pay GST on fuel and machinery.  And in return get no tax refund or adjustment as electricity is exempt from tax i.e. there is no out put tax justifying input tax credit. 

The question is will this additional cost, say up to 10 percent over and above the present cost, be borne by the power sector or by the consumers?  Will “change in law” clause help the sector to pass on this cost or will the Regulator create stumbling blocks and the political compulsions will ensure the power sector bears the cost?  Tug of war will start soon and let us see who wins.  If consumers have to pay more then it will be a difficult situation for the Central and State Governments as this hike will be too steep to be tolerated.

The power sector shall have huge negative impact – both for the power producers and for the Governments. And us Consumers will have to pay more – undoubtedly as such a huge cost no power generator or producer or distributor can absorb under any circumstances unless the State Government offers subsidies from its own revenue sources as under the Local SGST Act it shall have no power to give such subsidy till cleared by the GST Council.

You can give your feedback via comments or mail at Fcarashmijain@gmail.com