The finance ministry is considering a slew of tax breaks to help the power sector turn around. In order to make up for the potential revenue loss, it may consider imposition of a cess on electricity generation.
Among other options before the Centre are imposition of a cess with marginal Customs duty on equipment imports and a set of indirect tax measures, which includes reducing duties on spare part imports, fuel imports, service tax exemptions and easier norms for obtaining mega power plant status.
It is also considering whether reforming distribution companies could be allowed to float tax-free debt instruments to meet their transitional finance requirements. Given the requirement of Rs 40,000 crore (Rs 400 billion) over the next five years, a maximum of Rs 8,000 crore (Rs 80 billion) per year could be allowed.
The option of imposing excise duty on electricity generation is also being contemplated. Each Re 0.01 per unit levy would yield Rs 600 crore (Rs 6 billion) per annum to the government, it has been estimated.
Among the tax proposals being considered for the sector are a reduction of basic customs duty on equipment imports and energy conservation products and materials to 5 per cent, and scrapping of the 16 per cent excise duty on the power sector with consequent removal of the countervailing duty.
In case of mega power projects, certification procedures could be simplified and the threshold reduced to 250 MW, enabling such projects to import at zero Customs and excise duties with deemed export benefits.
Customs duty on transmission, sub-transmission and distribution systems could be reduced to 5 per cent and the CVD and the special additional duty scrapped. A reduction in Customs duty paid on spare parts of power projects, from the current 39.2 per cent to 5 per cent, and removal of CVD, are also under consideration.
To boost rural electrification, the finance ministry is considering providing full tax and duty exemptions on equipment and fuel used for creating infrastructure for decentralised generation and distribution systems in unelectrified rural areas.
On the fuel side, it is mulling over proposals to reduce the import duty on coal and on plant and equipment for coal washeries to 5 per cent, making imports of LNG and naptha Customs duty-free.
LNG, naptha and natural gas could also be included under Section 14 of the Central Sales Tax Act to ensure that sales tax on these items is 4 per cent across the country.
Exempting companies providing energy efficiency services from paying 10.2 per cent service tax and exempting activities like erection of steel structures and boilers from payment of this tax are also being thought over.
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