The Prime Minister’s Office has asked nodal ministries to speed up efforts to bring all states on board for the inclusion of oil, natural gas, electricity and coal under the ambit of the goods and service tax (GST). States have been reluctant because so far, they have the freedom to levy their own taxes — a significant part of the state revenue. Niti Aayog had reached out to the PMO with a blueprint to make the energy sector more competitive and ensure uniform pricing across India, a senior government official told ET, requesting anonymity. “Nodal ministries have taken recognition of the directive from the top and have initiated discussions with all stakeholders and states,” the official added. The next meeting of the GST Council will be held on January 10. Various stakeholders, including consumers, have demanded the power sector be brought in the ambit of GST, which may lower tariffs 10%. NITI Aayog is of the view that such a variety of subsidies and taxes distorts the market and promotes use of inefficient fuel. It has pitched for the same GST rate for all forms of energy as its absence has made both exports and domestic production uncompetitive. This is because there is no input credit available on these items.
A uniform GST would enable a level playing field. Currently, there is a large bias in favour of renewables in the GST policy. Inputs to renewables generation attract GST of 5% while inputs to thermal generation attract a higher rate of 18%.
“There should be no discrimination between renewables and thermal energy. All inputs going into both forms of electricity generation should receive tax credits,” the Aayog suggested, adding that GST would then become neutral between different forms of electricity generation, as should be under a good tax policy. The Centre collects Rs 2.5 lakh crore as tax on oil while almost Rs 2 lakh crore is collected by the states.
While the Centre is in favour of widening the GST net and bringing these products under the uniform tax regime, it would require huge compensation to the states, which bank heavily on revenue from these energy sources.
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