Given the current administrative structure of energy industry in India
The following are some the factors which make it, close to, impossible to subsume electricity tax under the proposed GST levy:
- Cost of power generation differs from mode to mode and in many cases from plant to plant. Moreover, Electricity tariffs are differently charged in different states and there is no uniform scientific model adopted in electricity pricing.
- A potential administrative problem can arise from accounting the transmission and distribution losses between states.
- Ad hoc demand management during times of power deficiencies becomes difficult.
- Accounting credit transfers between states will be quite tedious owing to the inter-state or regional management of power generation and transmission.
- An integration of the multifarious agencies and authorities in the power administration is pre-requisite for this reform.
- Electricity consumption entails high volume transactions. Hence, an input tax credit burden will be an unnecessary impediment in working capital cycle.
- Power sector is an investment intensive administration the melting time required to absorb input tax credit from capital goods will lock-in substantial sums of working capital.
- Electricity does not form a significant chunk of input cost in many industries.
The following factors detail issues in subsuming taxes on petroleum products:
- Demand and Supply management in the petroleum industry has strategic and security connotations attached. The current national level petroleum management structure may not accommodate a purely commercial form of levy designed on the destination principle.
- Accounting inter-state transfer of petroleum, especially in the transportation sector, will become an administrative nightmare. Consequently many rebating-related complications will arise.
- Petroleum levies are major revenue earners in many states and are often taxed at rates higher than the average VAT rates. Hence, an inclusion of petroleum levies under the larger umbrella of GST will entail higher GST rates which will inturn be regressive on other goods.
- Except in certain specified industries like Goods Transport Agencies, Power Generation (where no input tax credit can be passed on as power generation, as suggested by this study, will be kept outside the GST levied) and services specified under the service tax legislation etc, petroleum is not a major input and hence does not occupy a significant percentage of input costs.
The task force report suggests a bifurcation of petroleum levies based on the purpose of its consumption. It recommends that petroleum meant for industrial purposes must be taxed under the GST levy while allowing input tax credit and for all other purposes a levy similar to the ones currently imposed. Though this structure might ideally cater to the demands of political economy, it may impose an unnecessary administrative burden in form of strict vigilance to ensure classification on the basis of consumption is abided.
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