According to reports, the GST council has reduced the tax burden on domestic coal by placing it under the 5% GST bracket from the current rate of 11-12% (6% central excise duty plus 5% state VAT). Imported coal, however, would attract basic customs duty (BCD) at 10%. Transportation from the coal mines to the factory/construction site (inter/intra state) is a costly affair due to the service tax charged at the rate of 15% on the transportation services, which is transferred onto the consumer. Under the GST, the rate on transportation services on railways (main source of coal transport) has also been reduced to 5%, thus bringing down overall power production cost.
According to ICRA, the reduction in the tax incidence of coal would result in a 3-4 paise per unit decrease in electricity generation (for domestic coal) thus making it more affordable. As on the June 11, the government has revised the rates of static convertors, transformers industrial electronics and electrical transformer, electrical filaments, from 28% to 18% tax. Hence, reduced cost of generation and distribution of coal-based electricity will improve the profitability in this segment.
On the other, hand GST may not have such a good bearing on the renewable sector. Despite India’s plan to push 175GW of renewable power by 2022, the solar and wind energy are put in a higher tax bracket than before. The solar energy sector is currently exempt from electricity duty in most states. Various charges are levied on the procurement of goods and services, however, the government in order to promote renewable energy offers concessional rates on taxes such as the BCD, excise duty exemptions etc, as per MNRE report. These incentives will reduce in the new GST regime. The tax rate on solar panels and devices will increase to 5% from the current 0%.
The wind energy sector would also face a marginally negative impact, as the rates for its components (electricity generator, rotor, wind turbine controller) would increase to 5% from the current 3-4% (assumed at 30% imported, 30% intra-state and 40% inter-state equipment), in the case of domestic goods, and current BCD would be levied on imports, as well as an additional 5% (GST), as per the ICRA report. This would increase the capital costs of new projects by about 4%. Successful passage of the GST bill, although highly beneficial to the wider economy, would marginally impact both the ongoing and new projects.