GST AND POWER SECTOR
The tax treatment of the power sector in our country has not yet been rationalized inspite of the fact that the power is one of the most important inputs in the process of production of goods and services. For the seamless flow of input tax across all the processes / activities in the power sector it is necessary to rationalize the tax treatment of this sector.
The present situation of Power sector is quite grim. It is subject to multiple taxation. If we talk of power equipments, these are either exempt from CENVAT or subject to concessional rates at central level. The result is that either no or partial input tax credit is available. The input taxes remain embedded in the cost of power equipment.
Also, there is absence of a levy on Power generation, Distribution and Consumption. This makes the problem more complicated as it is not possible to avail the input tax credit for the CENVAT paid on equipments and stores. Similarly, there is no benefit of input tax credit in respect of state VAT on inputs used in the process of power generation and distribution.
Cumulative impact of the taxation:
Power is used as an intermediate input. The overall impact of present taxation regime at both central and state level is compounding cascading effect. This effect hikes the price of power generation and distribution. Industries in India got badly affected by this expensive power consumption. As a result, the international competitiveness of Indian industry is significantly undermined.
The introduction of GST regime should resolve the aforesaid issues in the power sector so that the target of the seamless flow of input tax credit can be achieved. The thirteenth finance commission has given some valuable suggestion in this area. They are as under:
i) The electricity duty levied by the states should be subsumed in the GST.
ii) The power sector must form an integral comprehensive GST base over which both the central and state governments would have concurrent jurisdiction.
iii) The tax regime for the power sector should be same as in the case of any other normal goods.
iv) Article 278 and article 288 of the constitution should be amended to enable levy of GST on supply of electricity to Government at all levels like any other normal goods.
The power sector should be included in the GST scheme. Set-off for the taxes paid across all the processes / activities in the power sector should be confirmed. It will reduce the cost of power projects. Consequently, cost of generation and distribution of electricity will also come down. It will stimulate the Indian industries since power is a significant input in the process of production of goods and services. Indian industries may compete in the international market more efficiently. Reduced cost of generation and distribution of electricity will improve the profitability of power projects. Profitability in this sector will generate the scope of new investment into this sector. But the cost of the power by non commercial units, like power bill of your home will increase.