The imposition of goods and services tax (GST) on electricity could result in an annual revenue loss of over Rs 59,700 crore to the general government, even if the item is kept under the lowest tax slab of 5%, according to a study by Ernst & Young. This assumes the current system of electricity duties is done away with when GST is levied on electricity. The report, seen by FE, was prepared at the behest of NTPC to analyse the potential benefits and drawbacks of making electricity taxable under GST. Of the aforementioned revenue loss, Rs 57,395 crore is seen to be the cumulative loss of state governments while the Centre is seen to lose around Rs 2,318 crore every year, as per the Ernst & Young report.
The Union ministries of finance and power were deliberating on making electricity taxable under GST, and NTPC was asked to conduct detailed research on the subject. Currently, states charge electricity duty based on consumption, which varies from state to state and goes up to 20% in some cases. Since coal is under GST and electricity is not, power utilities and industrial and commercial consumers are denied input tax credits.
There is a 5% GST on coal, the largest source of electricity in the country. The Rs 400/ tonne GST compensation cess is also levied on coal. The study found that the introduction of GST will lead to lowering of commercial and industrial power tariffs, but may lead to higher tariffs for domestic and agricultural consumers who cannot claim the input tax credits. To keep end-tariffs in check for domestic and agricultural power, states will have to pay higher subsidies.
To offset revenue losses to the Centre and states, the report suggested charging 5% GST on all consumer categories and at the same time a calibrated electricity duty for the various consumer segments. The electricity duties have been calibrated in such a way that the benefits to industrial and commercial consumers are limited within Rs 0.05/unit. In a scenario where 5% GST and calibrated electricity duties are levied, the revenue loss for the centre is pegged at Rs 2,131 crore while states are seen foregoing Rs 3,653 crore after devolution of 41% revenue by the Centre to states.