Bring electricity under gst soon

Bring electricity under gst soon

One glaring anomaly in the forthcoming rollout of the goods and services tax (GST) is that electricity duty remains outside its purview. While scores of central and state taxes are to be done away with to usher in GST — so as to modernise the indirect tax regime, eschew cascading taxes on inputs, with set-offs provided for taxes already paid in the value chain — an important sector like electricity is to remain outside the GST regime for the foreseeable future.
Such exclusion makes no sense. Electricity duty can be as high as 25-30% in a few states, but the average is about 8% levied on consumers. The tax needs to be made amenable for input tax credit, otherwise it would in effect cascade economy-wide. Keeping something as essential as electricity outside GST would be retrograde, inefficient and perversely deny input tax credits in a vital sector that is undergoing path-breaking and transformative change.
Note that the GST Act defines ‘work contracts’ as services. And the power sector is essentially a mesh of contracts for engineering, procurement, construction (EPC) to generate electricity, boost energy efficiency and shore up renewable power. Yet, input tax credit would not be available on EPC contracts, with electricity outside the GST regime. Further, the Finance Act of 1994, in section 66D, lists transmission and distribution (T&D) of electricity in the negative list of services.
So, no input tax credit is possible for T&D activity either. Keeping electricity outside GST is not international practice. The state governments seem chary of giving up electricity duty as they collect considerable sums on that account, even as they surreptitiously seek to indulge in fiscally reckless giveaways in power. Including electricity in GST would actually boost transparency in the sector.