GST regime: Power players weigh gains, losses

KSENIA KONDRATIEVA Mumbai | Updated on January 11, 2018


Power distribution and transmission companies express mixed feelings over the impact of GST on the industry.

While on the one hand, the cost of inputs is likely to reduce in the thermal power sector after the GST Council finalised the tax rate for coal at 5 per cent, against the current rate of 11.69 per cent, the cost of capital goods as well as services in all segment of power sector might increase from 15 per cent to 18 per cent.

“We have been asking the government to exempt power sector input costs from GST, but it did not happen, which is a disappointment. And if it is in the 18 per cent slab, the cost of equipment will go up. We cannot pass it on because the power that we produce is not a part of GST and we cannot collect it from the consumer,” Amarthaluru Subba Rao, Executive Director-Finance & Strategy, CLP India, told BusinessLine.

Amit Bhagat, Partner, Indirect Tax at PwC, shares his sentiments. “The worry or adverse impact of the GST is that if the service tax rate goes up from 15 per cent to, say, 18 per cent, considering that we are still not aware of the service tax, it will be an incremental cost, so the operating expenses may increase a bit,” he told BusinessLine.

Experts are not sure whether the reduction of rate on coal, which looks positive for the thermal power industry, will cushion the increase on the operational cost on account of a higher rate for services under GST.

“The rate for coal at 5 per cent and ₹400 per tonne as a cess may bring down the cost of procurement slightly. But this will benefit the operating projects.

“In the case of new projects, on the capex side the current procurement cost for setting up a power plant was around 14.5-15 per cent, most of those goods I am now seeing at 18 per cent, so for the products and services purchased for the new power projects, the cost may go up,” Abhishek Jain, Tax Partner, EY told BusinessLine.

Distribution cost

Asked how the lower tax rate for coal may impact consumers, Subba Rao said the cost to the distribution companies will come down, but it

is hard to say if they will reduce tariffs for consumers. “My guess is that since the distribution companies are already in losses, they will not pass the cost reductions on to consumer,” Subba Rao said.

Published on May 19, 2017

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