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Mr. P.N. Krishnan focused on Section 10-23G.  He argued that Section 14-A should be amended so that the benefit goes to the deserving party.  By the action of financial institutions the whole purpose of Section 10-23G was failed.  If the financial institutions want to avail the benefit, they should affect necessary reduction in the interest rates to the IPPs.  Although today the prevailing rate is 10-11%, many IPPs are still paying at 20%.  On one hand IPPs have to face a continuous cry from Electricity Boards to lower the tariffs, and on the other hand Section The Finance Ministry should to get back Section 10-23G and make it operative as it was originally intended to be.  Effectively it should make the cost of borrowings lower for generating companies by allowing a 100% tax break on tax exemption earned by the lender, provided the benefits are passed on to the borrower.  There is no point in advancing money at 16% and getting tax exemption on such a revenue.  It should be made mandatory for the lender that the benefit of tax exemption should be passed on to the generating company, either in form of lower interest rate or rebate. Only PFC is diligently following the practice of passing back the benefit.  PFC clearly states that if there is Section 10-23G benefit involved, they will give 1% rebate.  If it is not so the interest rate is 1% higher.

The same logic holds good for MAT.  Under the two part tariff mechanism for the computation of income tax, it is grossed up for determining the passing up of liability of the Electricity Board to the generating company to ensure that the return on equity is on net on tax basis i.e. 16%.  The applicable rate for MAT is 8.25%.  It gets grossed up and the impact comes to 12% in the form of tariff to the Electricity Boards.  This is again passed on to the customer or the government in the form of subsidies which the Electricity Boards collect from the govt.  85% of the money collected by the center is passed back to the states.  So the state pays the net MAT at a very high premium to collect that 85%.

Recommendations by Prof S.L. RAO

Although we have an exhaustive list of innumerable taxes, we do not know the impact of all these taxes in different parts of India on different types of power generated. Various companies present at the conference have offered their support to establish a working group to discuss and analyze the impact of taxation on the Power sector.  

Fuel is an important component in the energy chain. In India taxation on fuels is very heavy and should be brought down. Our govt. needs to rework the fiscal framework. Sales tax is the ‘bug-bear’ for LNG and the entire gas business. Tax costs are loaded into the tariff. The consumers cannot take the benefit even though it is being paid for in the energy chain. India is not ready for VAT.  VAT needs to rationalise the impact of sales tax.  A group of public finance specialists have studied VAT and found out that many states are not ready for it.  If they introduce VAT many states will suffer tax losses.  

Concern was expressed about the urgent need for a National Fuel Policy and reforms in taxation structure to look at the differential between various states and attempt for a harmonisation of rates of sales tax between the states.  The states which have high rates are putting themselves at disadvantage.  For example, Gujarat is killing industries with extremely high level of taxes on Naphtha and Gas. It was pointed out that in China

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