The power sector is hoping for early inclusion of electricity in the Goods and Services Tax (GST) and all eyes are on the panel formed to study the potential impact of the new taxation regime on the industry.
A favourable assessment by the committee can tilt political consensus toward inclusion of electricity in the GST. Sources said the panel might come out with its report soon.
States continue to levy electricity duty, which works out to 8 per cent on an average but could be as high as 25-30 per cent in some cases, even as work contracts in the industry are being taxed as services under the GST.
The power sector is a mesh of contracts for engineering, procurement, construction (EPC) to generate electricity, boost energy efficiency and shore up renewable power.
But with electricity outside the GST, input tax credits are not available on EPC contracts. Further, the Finance Act of 1994, in section 66D, lists transmission and distribution (T&D) of electricity in the negative list of services. That means no input tax credit is possible for transmission and distribution activity either.
Anyway, exclusion of electricity from the GST is not in keeping with international practice.
A core committee headed by Special Secretary in the Union power ministry and including members from public sector utilities NTPC, PGCIL, NHPC, PFC, GUVNL and private power companies such as Tata Power and Sterlite Power was set up last August to study impact of GST on the power sector.
The panel has been asked to analyse the likely effect of GST separately for the generation, transmission and distribution sector. It has also been tasked to examine the benefits which are likely to accrue to the ultimate consumers in case the power sector is included in the new tax dispensation.
The panel is also mandated to suggest a revenue neutral tax rate and recommend a timeframe for inclusion of electricity in the GST.
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