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Government Explores Inclusion of Electricity in GST Framework

The inclusion of electricity within the goods and services tax (GST) framework may be a reality soon as the government is exploring all the options in this regard. Once electricity falls under the GST regime, manufacturers can offset some of their tax liability by using the GST credit from their electricity expenses. The move of the government aims to enhance the competitiveness in the sector, a top source privy to development said on Tuesday.

At present, power utilities include GST in the prices of electricity rather than collecting it separately from buyers. This results in an embedded tax within the electricity price, causing a cascading effect on the manufacturing sector. As the power ministry is well aware of its potential effects, especially on the revenue loss for the industry, state revenues, and household electricity expenses, the Centre and states are jointly making all-out efforts to explore the possibility of maintaining lower state electricity duties on integrating electricity into GST,” the source said.

According to the source, the inclusion of electricity in the GST framework is expected to benefit almost all coal-based power plants in their cleaner energy and hydro projects, and would serve as a pilot for extending GST to cover petrol, diesel, crude oil, natural gas and jet fuel as well. It is, however, learnt that the government has already engaged some audit and consulting firms to analyse this transition.

“From the findings in the analysis, we have gathered from industry feedback that the GST could potentially drive down electricity costs for businesses due to the possibility of claiming their input tax credits. The findings also indicate potential advantages for industries, projecting reduced levy expenses, said one of the industry insiders.

“By setting an appropriate GST rate on electricity, which will benefit both the Centre and states and readjust state electricity duties to a lower level, the overall impact could be revenue neutral for the states. Simultaneously, this move would offer the industry a more effective tax structure while safeguarding consumers from potential tariff hikes. It’s a step toward broadening the GST base and enhancing its efficiency,” he added.

The source further said that as each state has its own duty rates — some higher, some lower — the ministry, however, aims to assess the broader landscape to understand which states might be impacted and to what extent… “Additionally, they highlighted the need to comprehend the impact on the domestic sector, emphasizing its heightened political sensitivity, despite the potential benefits for the industry,” it added.

Source from: https://www.deccanchronicle.com/nation/in-other-news/261223/government-explores-inclusion-of-electricity-in-gst-framework.html

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