ICRA Assessment of GST Impact on Power Sector

ICRA Assessment of GST Impact on Power Sector

Sector

Pre-GST

Post-GST

Impact

Power Sector

Impact – Thermal – Marginally Positive, Wind – Marginally Negative

Reduction in tax rate on domestic coal provides a relief in the cost of power generation even after accounting for an increase in capital cost (due to higher tax rates in boiler, turbine, generator segment). 

On the other hand for wind energy sector, the impact is marginally negative due to increase in capital cost (higher tax rates in wind turbine generator), given that wind energy sector has been availing various concessional rates & tax exemptions.

Coal

11-12%

5.0%

Domestic Coal will be taxed at 5% under GST, while imported coal will continue to attract basic customs duty (BCD)

Impact

Positive for domestic coal users and Negative for imported coal users

Estimated to provide relief in variable cost of generation by about 3-4 paise per unit in case of domestic coal. However, the variable cost of generation for imported coal generators would increase by 7 paise per unit.

Wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller

3-4%*

5.0%

Domestic equipment: GST would be applicable at 5%

Imported equipment: BCD rate would continue. Additionally, GST would be applicable at 5%

Impact  Marginally Negative

Would vary depending on the VAT rate applicable in a state and mix of imported equipment

Overall impact including for balance of plant equipment and GST on service component is estimated to increase the capital cost for new projects by ~4%, assuming 30% imported components

Boiler, turbine and generator equipment for thermal power projects

16%^

21.6%@

18%^

23.0%@

Domestic equipment: GST would be applicable at the rate of 18%.

Imported component: BCD rate would continue.  Additionally, GST would be applicable at 18%

Impact  Marginally Negative

Would vary depending on the VAT rate applicable in a state and mix of imported equipment

Overall impact including for balance of plant equipment and GST on service component is estimated to increase the capital cost for imported BTG based projects by ~2%

*Equipment mix assumed to be 30% imported, 30% intra-state and 40% inter-state

^Domestic BTG equipment; @Imported BTG equipment

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