Higher GST on coal unlikely to negatively impact electricity tariffs in India

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.