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Potential Impact of Bringing Electricity under GST

As the government contemplates bringing electricity under the purview of Goods and Services Tax (GST), Deloitte’s analysis suggests potential benefits for the industry, primarily in reducing levies. Input tax credits under GST could lower costs for power utilities, making electricity more affordable for industrial consumers.

State Revenue and Consumer Bills: However, concerns arise regarding the impact on state revenues and household electricity bills. States, apprehensive of losing electricity duties, are evaluating the potential loss, given variations in duty rates across regions. The move aims to balance industry benefits with the potential impact on domestic consumers.

Proposed Solutions: To address state revenue concerns, discussions propose retaining state electricity duties at a reduced level while integrating electricity into GST. This approach aims for revenue neutrality for states while enhancing industry competitiveness and safeguarding consumers from tariff hikes.

Sector-specific Implications: Coal-based thermal power plants stand to benefit significantly, as they can utilize input tax credits to meet their GST liability efficiently. Conversely, clean energy and hydropower projects may see less impact. The inclusion of electricity in GST could pave the way for similar reforms in sectors like petrol, diesel, and natural gas.

Implementation Timeline: While the move is anticipated in the coming years, its realization may take time, with estimates ranging from five to ten years. Convincing states remains a pivotal challenge in the process, reflecting the complexity and sensitivity of the reform.


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