The introduction of GST will work to the advantage of the power sector on the whole. The decision to bring coal under the 5% tax slab as against 11.7% earlier will lead to a reduction in tariffs, which will eventually be passed on to the consumers. A single tax on capital goods chargeable at 18% will help power project developers reduce their costs and have a favourable impact on project finances. Previously, power generating companies were paying 2-3% central sales tax and differential VAT over and above the 12% excise duty.
The GST Council has also done well by bringing down the tax on solar modules, which so far enjoyed tax exemption, from 18% to 5%. A GST of 18% would have restricted the flourishing solar industry by resulting in a steep 10-12% increase in solar project costs.
The GST regime will also simplify matters for power sector enterprises like the Hartek Group which are engaged in both manufacturing and extending services. These firms, which were being charged both excise duty and service tax, will now be required pay a single tax in the form of GST as a result of uniformity in all works contract-related aspects. Considering the urgent need to upgrade T&D infrastructure, the service tax exemption enjoyed by the T&D industry should continue.