volumes. Therefore govt. will not be a net looser. Mr. O.N. Marwah added that the impact on increased production by lowering taxes must be borne in mind.
Ms. Sujatha Srikumarsaid that taxation is a critical area in the power sector and there is need for rationalization, logic and a rational approach. Mr. S.L. Rao concluded that we need a national fuel policy, a taxation structure that reflects the country’s priorities between fuels and these priorities would obviously also include the environmental impact of different fuels. Mr. O.N. MarwahPower suggested that just as some state govts. have exempted certain industries from payment of sales tax of 15% so that the states are able to grow, why not the power sector be exempted for a certain period say 5 years from all taxes? Revenue loss can be compensated with the increase in production and industrial activity.
Ms. Sandra Shroff said that China charges industries pays Rs. 2.50/unit for their electricity while in Gujarat the rate is upto Rs. 5. and at this rate, availability and quality, industry will relocate. Mr. S.L. Raosaid that manufacturing in the contribution to GDP has been static in India at around 15%, while in China it is around 24%. At the same time the Chinese pricing is a very opaque system and from all the reports on China manufacturing there is a differential cost of power itself.
Mr. Shyam Wadhera said that there are major cost elements which are impacted by taxes and duties and are related to capital cost i.e. the return on equity.
The taxes and duties which impact the capital cost are customs duty, excise duty, sales tax and withholding tax. On customs duty, the power plant equipment is subjected to 28.1% which includes 5% basic duty and 60% countervailing duty. In terms of the installed cost, the custom duty impact is Rs. 5.4 crore/MW, which translates into per unit impact on price of 16 paisa. Then we have the sales tax, with different states charging sales tax on machinery and equipment procured for the power sector. Haryana State Electricity Board has extended concessional sales tax of 1%. These facilities are not available with the other states. This can be considered by the other states also.
Next is withholding tax, the impact of exemption on withholding tax, income tax on interest payments on external commercial borrowings is also a significant element. The withholding tax rate is 20% and 8% interest rate for loan which grossed up becomes 10%. Then we have the taxes on fuel, LNG, attracts the basic custom duty of 5%. On coal we have a duty of Rs. 3.5/MT which