GST reforms to bring down tax on coal, reduce power generation cost, says govt

New Delhi, Sep 11 (PTI) The government on Thursday said that the GST reforms will bring down the overall tax on coal and reduce the cost of power generation.

Earlier, coal attracted 5 per cent GST along with a compensation cess of Rs 400 per tonne. The GST Council has recommended the removal of the GST Compensation cess and an increase in the GST rate on coal from 5 per cent to 18 per cent.

The new reforms bring down the overall tax on coal grades G6 to G17, which is in the range of Rs 13.40 per tonne to Rs 329.61 per ton.

"The average reduction for the power sector is Rs 260 per tonne, which will reduce the cost of generation by 17 to 18 paise/kWh," the coal ministry said in a statement.

The reforms will also help in rationalisation of tax burden on coal vis-Ã -vis its pricing.

Earlier, a flat rate of Rs 400 per tonne was imposed as GST compensation cess without considering coal quality. This disproportionately affected low-quality and low-priced coal. For example, G-11 non-coking coal, which is the majority coal produced by state-owned Coal India Ltd, had a tax incidence of around 65.85 per cent compared to G2 coal where incidence was 35.64 per cent.

With the cess removed, tax incidence across all categories of coal has now been rationalised to a uniform rate of 39.81 per cent. The reforms will also help in promoting self-reliance by import substitution.

Earlier, due to a flat rate of GST compensation cess at Rs 400 per tonne, the landing cost of high gross calorific value imported coal was lower compared to domestic low-grade coal. This used to place domestic coal at a disadvantage.

"The removal of cess levels the playing field, strengthening India's self-reliance and curbing unnecessary imports," it said.

The reforms also remove the inverted duty anomaly by raising the GST rate to 18 per cent. Earlier coal attracted five per cent GST but the input services used by coal companies used to attract higher GST rates, normally at 18 per cent. This meant that a huge amount of unutilised tax credit was standing in the books of these coal companies as output GST liability was lower.

Since, the outward GST liability of coal companies was lower as compared to GST paid on input services, this amount was continuously increasing and with no refund of this amount, this implied blockage of funds of coal companies.

Now this unutilised amount can be used for some years to pay off the GST tax liability, leading to release of blocked liquidity. This will also help in staving off the loss of coal companies due to the accumulation of such unutilised GST credit.

Despite increase in GST rates, the reforms will have lower overall tax incidence on final consumers, due to removal of GST compensation Cess.

Similarly, the removal of cess, rationalisation of duty, and correction of the inverted structure release liquidity, eliminate distortions, and prevent large accounting losses for coal producers.

"The decisions of the GST council represent a balanced reform that benefits both coal producers and consumers alike," it said. PTI SID MR