“Power
is the mainstay for every civilisation. Possession of
adequate generating capacity, efficient transmission and
distribution, and affordability are the key drivers for
every nation, regardless of size and population,” he
adds, during the course of an e-mail interaction with
Business Line, soon after the announcement of Budget 2008
proposals.
“While
the Indian Government has undertaken significant steps on
all these aspects, to boost the energy security of the
country, there are a few areas that require attention, to
achieve the ultimate goal that it has embarked upon to
achieve.”
Excerpts
from the interview.
What
has been the direction of policy with regard to power?
Since
taxes incurred by the generating companies form a
significant part of the power tariff, the intention of the
Government has, of late, been to ensure that via grant of
fiscal incentives the cost of power is kept at levels such
that affordability of power is never an issue.
In
other words, the intention is to ensure that fiscal
incentives are granted to power projects and these
incentives are passed on to the power consumers (as much
as possible) via adoption of tariff-based competitive bids
etc.
Examples
of incentives.
Customs
and excise duty exemptions on import and manufacture of
plant and machinery (respectively) form the edifice of the
fiscal incentive scheme. Appended to these are the several
fiscal incentives that are offered under the Foreign Trade
Policy, which allows ‘deemed export’ benefits to power
projects of varying capacities.
Are
there gaps?
Yes.
For instance, it does appear that service tax incurred
during the construction of power projects (and which forms
one of the significant costs for the power developers) is
not exempt.
As
a result, the cost of service tax (applicable at 12.36 per
cent of the value of services such as engineering,
construction, installation, etc.) ultimately makes its way
to the power tariff, thereby making power expensive for
the consumers to some extent.
Therefore,
the question that begs the attention of the Government is
whether exemption from service tax be not granted to mega
and ultra mega power plants just as customs duty and
excise duty exemptions have been granted – more so
because all these taxes are levied and administered by the
Central Government, which is also the nodal agency
formulating the policy on power.
Any
other irritants?
Another
difficulty that merits consideration (for mega as well as
non-mega) is that the output of the power plant does not
attract excise duty; nor does it attract VAT (value added
tax) or CST (Central Sales Tax). This results in trapping
of input taxes (on which exemption is not available, viz.
input service tax, input VAT/works contract tax etc.).
To
elaborate, under a fiscal regime that is based on the
concept of value added taxes, exemptions are not an
acceptable concept. The reason being, where the output is
exempt from tax, taxes incurred on the input cannot be set
off against the output, and therefore, they remain as a
system tax, to be ultimately rolled into the price paid
for the services or goods procured by the consumer.
What
can be an alternative?
Instead
of exemption, if the output (i.e. electrical energy) were
‘zero-rated,’ much of the input taxes could have been
claimed by the power companies as refund from the
Government (Central Government for Central levies and
State Government for State levies).
This
would have led to the ultimate gain of the consumer on the
basis that the power producer would have had the
opportunity to factor these refunds in arriving at the
power tariffs.
The
concept of ‘zero rating’ is prevalent in many
countries across the globe, which have adopted GST (goods
and services tax) or VAT. Even in India, at the state
level, sales made to EOUs (export-oriented units) and SEZ
(special economic zone) have been declared as ‘zero
rated’ for precisely the same reason.
Therefore,
time is perhaps ripe to revisit the concept of exemptions,
and then selectively move towards the concept of ‘zero
rating’ till such time India does not embrace the GST
system, which is proposed to be rolled in a few years from
now.
On
the policy relating to mega power.
An
issue that requires careful consideration relating to the
current Mega Power Policy in force in India is about
alignment. The notifications issued by the Ministry of
Finance under the customs and excise laws, and the Deemed
Export Policy, need to be aligned appropriately, in terms
of the language used, the specific situation that is
sought to be covered, and the exceptions created.
To
illustrate, while for grant of customs duty exemption, the
customs notification in force provides a set of criteria,
one criterion requires obtaining a certificate from the
Ministry of Power stating that the project in question is
a Mega Power Project. However, criteria that would govern
the Ministry of Power while issuing such a certificate
have not been provided for in the notification. Nor do we
have, in the public domain, any policy document that
clearly lays down these criteria.
Sour
