industrial power costs Rs. 2.50 and in Gujarat we are paying Rs. 5.00. If the cost of power is not brought down India can never be a manufacturing country.
Govt. at the Center should realise that fuels are of national importance. Particularly naptha/gas should be declared as “ Declared Goods” and therefore subject it to only CST rate of maximum 4% rather than continuing with 22%. Electricity must be treated as zero rated goods so that all taxes paid up to that point can be claimed back.
SEBs are bearing the burden of development of the power sector. The Central Govt. has to share this burden. Import terminals and pipelines must get equal fiscal treatment. They should be recognised as infrastructure facilities and get lower customs duty. There is need for improvement in efficiency of tax collections at all levels. A way must be found to bring in a modified VAT instead of sales tax to exempt customs duty on crude oil for power generation. Giving a specific duty exemption to crude oil for power generation is worth considering, as there is no question of leakages. A sales tax holiday for 5 years for new power projects might also be examined.
The total impact of taxes, in case of coal is 23.2 paisa / KWH, incase of Naphtha 67 paisa / KWH and in case of gas we get a variation of 25 paisa to 43 paisa per KWH. Exemption of customs duty to mega power projects is a little illogical because mega power projects are by definition lower cost projects. Exemption of customs duty should be offered to power projects as a whole. Deemed export benefits should be extended from mega power projects to all power projects. States should be requested to exempt fuel from sales tax and electricity duty for power plants, including transmission and distribution. At least these taxes should be exempted for a minimum period of 5-10 years to enable quick capacity addition.
Withholding tax on external commercial borrowings was withdrawn last year. This does not make any sense as nobody can take its advantage. Regarding tax incentives the retail investors should get tax holiday benefit made available to them as it is available to power companies. 10(23G) benefits should also be made available to retail investors. Hedging cost should be allowed for tariff (to which CERC has now agreed). Stamp duty is a major cost in new projects; eg., in case of Hirma Project the cost of stamp duty alone was around Rs. 400 crores. Stamp duty exmption should be considered. R&D cess on development and design form O&C might be waived off. Exemption of MAT for projects subjected to tax holiday needs to be made. 10 (23 G) is available to only those projects which are commissioned before March 2006. Hence the existing projects may not be able to take its advantage.
When government or Power Minister says that we need to reduce the cost of power, it should be pointed out that the existing taxes and levies are responsible for high costs of power. Therefore various ministries and Chief Ministers of States must together and in a holistic and coordinated way work out a better taxation structure. PFC, NTPC, Ernst & Young, J Sagar Associates, Bina Power offered their support to IPPAI to form a working group to analyse the impact of taxation on the Power Sector and what reforms are needed in the present taxation structures.