Indirect tax on coal to be lower, but cess to stay under reformed Indian indirect tax regime

KOLKATA (miningweekly.com) – India’s reformed indirect tax regime, the Goods and Services Tax (GST), will lower the cost of coal and electricity tariffs, but will not subsume the current rate of cess on the fuel.

Under the GST, the indirect tax incidence on coal will be reduced to 5% from 11% at present, and according to a Coal Ministry official, power distribution companies would have the freedom to either pass on the benefit of lower fuel costs through a reduction in electricity tariff, or adjust the beneficial impact if existing tariffs were already up for revision.

The reformed indirect tax regime, which kicks in on July 1, entails uniform indirect tax rates across all Indian provinces to usher in a ‘One India, One Tax’ principle subsuming all provincial level levies and taxes.

The new tax regime will impose four slabs of indirect rates – 5%, 12%, 18% and 28% in the case of goods and a ‘standard’ 18% for most services.

Although, in principle, the GST would subsume all other central and provincial level taxes and levies under these rates, the current cess on coal at Rs 400/t ($6/t) would continue in the post-GST regime, the official said.

Funds generated through the coal cess, estimated at $5.4-billion a year, would be used to reimburse provincial governments for any potential loss in their revenue generation as a result of the GST.

The lower indirect tax was also expected to prove to be cost beneficial for domestic steel producers as the lower rate of 5% would be applicable in the case of coking coal too.

Alongside this, indirect incidence on iron-ore would be reduced to 5% under the GST from 12.5% at present, which would also subsume all provincial level taxes, thereby reducing input costs of domestic steel mills, the official said.