The Council of the Goods and Services Taxes (GST) on September 3 decided to increase the tax on coal and lignite from 5% to 18%, while also removing the additional compensation cess that is levied at 40%. The Union government, in a statement, said this move is unlikely to add more burden on the buyer and hence, unlikely to impact power prices.
The government’s statement was corroborated by industry stakeholders and experts who said the move could rather reduce power tariffs marginally.
Sharad Mahendra, Joint MD and CEO of JSW Energy said the move will reduce fuel cost. "In the thermal business, particularly where plants utilise domestic coal, the rationalised GST (with removal of compensation cess of Rs 400 per tonne) will help lower fuel costs, thereby reducing the cost of thermal power. This will help to reduce the cost of base load for the country and would also help to improve financial health of distribution companies (discoms)," he said.
Vikram V, Vice President and Co-Group Head, ICRA Ltd said the move is positive for the power sector. “While the headline GST rate has increased, the removal of the cess is expected to reduce the cost of generation for coal-based power generators. This is expected to further benefit the discoms, as the move is likely to translate into a reduction of around Rs 12 paisa per unit in their cost of electricity supply, as coal-based capacity accounts for nearly 70% of total generation at an all-India level,” he said.
Also read | GST 2.0: Tax cuts to fuel India's clean energy sector as rates on parts slashed to 5%.
JM Financial Institutional Securities said the removal of the clean energy cess (Rs 400 per tonne) is a positive, particularly for East and Central based players with higher coal reliance. “Despite the hike in tax, the impact remains neutral as input tax credit can be fully offset against final GST liability. At an industry level (assuming 15% coal usage), this translates into a benefit of Rs 5–10 per tonne.
The increase in GST on coal impacted power stocks. In Thursday's trade, Coal India Ltd remained flat, while NLC India, Tata Power, and JSW Energy fell over 1% each.
The government, in a set of frequently asked questions (FAQs), stated that prior to rate rationalisation, coal attracted 5% GST in addition to the compensation cess of Rs 400 per tonne. “The Council has recommended to end Compensation Cess and hence the rate has been merged with GST. There is no additional burden,” it said.
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