Ministry of power has said that tax liability of the power sector would increase by up to 30 per cent if the Kelkar report on direct and indirect taxes was implemented and this could lead to proportionate increase in the electricity rates.

Ministry had objected to some of the proposals including withdrawal of interest on borrowed capital, provision for bad doubtful debts and tax holiday under section 80 (I)(A), sources said adding that the decision to withdraw these would add to the woes of the power sector.

The power sector, having accumulated losses of about Rs 30,000 crore (Rs 300 billion), would get a serious blow if the recommendations of the Kelkar report were implemented, they said.

Sources said that one of the most important elements was withdrawal of interest on borrowed capital as the average debt-equity ration in the power sector was 4:1 and all the power projects were high capital intensive and involved long gestation period.

The ministry had earlier written in this regard to the ministry of finance.

With the increase in the tax liability ranging between 25 to 30 per cent the net burden in rupee terms would come in the range of about Rs 20,000 crore (Rs 200 billion), which would be passed on to the users of electricity translating into increase in tariff by up to 30 per cent.