this, 10% import duty, marketing margins and profit of approximately 5% (Rs. 680 for naptha and Rs. 500 for FO) are added. The differential freight from inland refineries comes to Rs. 575/ton and Rs. 325/ton. Excise duty comes to Rs. 1840 for naptha and Rs.1600 for FO. Then comes Sales Tax levied by the state govts varying from 11-20%. The final price of naptha comes to Rs. 18100 and FO Rs. 14000. Till now, ten power plants have been exempted from paying excise duty, after the fulfillment of certain conditions. If others get this benefit the impact will be 24-25%. If the sales tax which is as high as 20% is brought down to 10 or 15%, the cost of taxation on fuels will be around 15%. On exempting sales tax completely, the impact of taxation will be 8-9%. This will significantly impact the earning capacity of power plants and the viability of the projects will greatly improve. The appetite of the state govts is not limited to sales tax. There is entry tax levied in the states on fuels. VAT can be introduced in their place.
Prof S L Rao concluded that we need to estimate the impact on power cost of the taxation on the two fuels, naptha and FO. What is the proportion of power tariff which is accounted for by taxes? The suggestion that reducing or removing these taxes will substantially reduce the tariffs and hence increase the viability of power projects may bot be feasible. Instead we need to look at tax structure reforms and the relative taxes. There is little scope for overall reduction as the govt needs these revenues. But it should at the same time try to make it easier for the consumers. Entry tax is a nuisance as it causes huge inefficiencies. The problem of differential sales tax should be dealt with as it results in business moving away from one state to another.
Mr. Gokul Chaudharyrecognized that the energy gap is increasing and will continue to increase for the next 25 years unless no singular measure is adopted to make power affordable and reliable. Fuels are an important component in the energy chain and can bring significant efficiency and competitiveness in the final cost of power. So far there has been no comprehensive study as to how all the inputs finally translate into the cost of power and that his organization is willing to commit time and resources for such a study which will be useful to industry for lobbying with the states and central govts. In Hydrocarbon Vision 2225, there is a mention about the widening energy gap and the need for diversified and competitive fuel supply to ensure continuous development of the economy. The regulatory and policy framework for the fuel sector has to be such that it welcomes and attracts investment, both foreign and domestic. It should provide a stable and progressive fiscal regime that sustains the well being of all the stakeholders, the investors, the consumers, the govt. and the economy at large.