GST on power: States could take an annual revenue hit of ₹57,395 cr

| | Updated on: Jan 03, 2022

Industrial and commercial users may get benefit by input tax credit

The States will incur an annual revenue loss of close to ₹57,395 crore if the government imposes a GST of 5 per cent on electricity and fully subsumes state electricity duties (SEDs). The loss to the central government was calculated at around ₹2,318 crore.

According to sources, the findings are part of a report by NTPC. The Ministry of Power directed NTPC to conduct a detailed research on the pros and cons for power consumers, States and the Centre on charging GST on power and subsuming SEDs. It was prepared by Ernst & Young on behalf of NTPC. ‘

Subsuming SEDs

One of the sources said levying GST at 5 per cent with SED fully subsumed would lead to a revenue loss of ₹2,318 crore for the Centre after transfer of 41 per cent share to the States. For the states, the loss was calculated at ₹57,395.

“Accordingly the total loss would stand at ₹59,713 crore. Here the losses are higher as States would take a bigger hit of ₹ ₹51,853 crore on account of subsuming SEDs. The loss due to SEDs is similar even if GST is imposed at 12 per cent and 18 per cent,” the source explained.

The report suggested the best scenario would be imposing a GST of 5 per cent and applying a calibrated rate of SED. For domestic consumers, the SED will be fixed to ensure there is no change in power tariff. While for industrial and commercial users, their benefits are to be capped at ₹0.05 per unit, he added.

“The report’s final calculation was based on this criteria and it suggests that the Centre will incur a loss of around ₹2,130 crore, while States will lose ₹3,650 crore. Thereby the overall loss has been calculated at around ₹5,780 crore annually,” he explained.

The report was discussed in various meetings with the Power Ministry for possible approaches and the way forward. Besides, meetings were also held with the Central Electricity Authority (CEA) and the Power Finance Corporation (PFC) for collating the data.

‘Power price inflated’

On rationale behind implementing GST, another source said, “At present, state governments levy SED as per their respective laws, which is resulting in blockage of input tax credit (ITC) of GST on goods and services procured by power companies. As a result, electricity price gets inflated due to non-availability of ITC to industrial and commercial consumers resulting in higher tariff cost for the industry at large”.

Allowing ITC will reduce the power tariff cost, resulting in low cost of production of goods and services. Further, this will ultimately benefit the end consumers. This would also have a positive impact on rising inflation, the source added.

The report referenced power tariffs in FY19 for computing the impact on different consuming classes. Power generation companies would be able to avail an ITC of ₹0.12 per unit for coal, gas ( ₹0.11 per unit), hydro ( ₹0.06) and wind ( ₹0.09). Due to multiple sources of electricity generation, the report considered a weighted average of GST cost saved through ITC for coal, gas, hydro and wind power plants at ₹0.11 per unit.

For the power transmission segment, the report calculated that power transmission companies would be able to avail an ITC of ₹0.0045 per unit, while power distribution companies would be eligible for an ITC of ₹0.05 per unit. Accordingly, the report calculated that the weighted average ITC saving for the power companies across the three segments would be ₹0.16 per unit.

Published on January 03, 2022

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