It may be recalled that the government had recently announced a zero import duty on equipment imports for the mega power projects. In order to give a level playing field to other independent power producers (IPP), Union power minister P R Kumaramangalam has proposed extension of this benefit for all power projects in the forthcoming budget.

However, indications are that the finance ministry is unlikely to accommodate this proposal. Union finance minister, Yashwant Sinha has, in fact, hinted at various forums that he is not in favour of zero customs duty on import of capital goods.

There have been indications that government may even withdraw this benefit currently being enjoyed by the power, petroleumand the fertiliser sector.Despite all odds, Kumaramnagalam, however, maintains that the zero customs duty on power equipment for the mega projects will continue.

Even officials in the power ministry said that mega power projects would continue to enjoy the benefits of zero import duty, as it has been barely four months, when an announcement was made in this respect.

"Withdrawing these benefits will not only imply reversal of government policies but will also have severe implications on the investments in the power sector and will convey wrong signals to the foreign players in the sector", said a power ministry official.

Moreover, at a time, when the power ministry has invited request for proposals (RFQ) for the first mega power project, it is felt that withdrawal of this benefit may have far reaching consequences on the fate of mega projects, started with much fanfare by the government.

Whether the finance ministry continues or withdraws the zero duty benefits from mega power projects, is yet to seen,majority of players in the power sector feel that the tax structure should be the same for all the category of developers.

Says, Ashok Das Gupta, director, ADG Power Consultancy Pvt,``All IPPs should be extended the same benefits as proposed for mega projects. There has to be uniformity in all categories of project developers''.

The Confederation of Indian Industry (CII), on the other hand has expressed its reservations over the existing the zero import duty structure for mega power projects. It has instead suggested a 10 per cent customs duty on foreign equipment supplies.

CII feels that a 10 per cent customs duty on foreign supplies will create a level playing field for both the domestic and international players besides compensating for the higher cost of finance and higher power tariff in India.In addition to this, CII has also recommended that a special additional duty (SAD) of four per cent be levied on imports. This, as per CII, will compensate for the central and state sales tax.

However, asper CII, if the state, where the power plant is located and all the states where equipment is domestically sourced as well as the Centre, are willing to grant an exemption from sales tax, this could be deleted.

In addition to its suggestion on extending the customs duty benefits to all generation projects, the union power ministry has recommended a host of tax incentives for the power sector, to be included in the forthcoming budget.

Unlike the previous year's Budget, this Budget is expected to unfold a series of tax benefits for the power sector. This includes a uniform import duty structure for all the fuels used for power generation, infrastructure status for the transmission sector besides the extension of tax holiday for the power sector projects during the ninth and the tenth plan.

In its pre-budget consultation with the power ministry, CII, besides its stand on customs duties, has also suggested that the transmission and distribution sector be treated at par with the generation projects in thepower sector. Says senior advisor, energy, CII, V Ranghuraman, "the transmission sector should be accorded the infrastructure status as applicable for generation projects and the income tax norms for the distribution companies should be the same as applicable for power generation companies".