Though the power sector has been kept out of the ambit of the Goods and Services Tax (GST), technically it is within the purview, which will lead to a cascading of taxes, global consultants Ernst and Young (EY) said on Wednesday.
"Worldwide electricity has been kept within the ambit of GST. But in India, it will lead to a cascading of taxes. When we import goods for setting up a thermal power plant, under the GST regime, it will come under the Integrated GST (IGST)," Partner EY Abhishek Jain said in a webcast.
"Overall impact under GST will be an increase in cost of goods procured. For the thermal sector, the likely rate of GST could be around 18-20 per cent. In a supply chain, there is an increase of setting up costs by 1-2 per cent," he said.
EY said that on solar, thermal and hydel projects taxes on setting up a project currently work out in the range of 15-16 per cent.
"Under GST, there is no clarity on whether exemptions on wind power projects will continue," Jain said.
"Assuming they cannot bring power within GST, at least projects that enjoy concessions, should get zero-rating," he added.
Zero-rating implies that power producers would be entitled to refund of tax to be paid under GST.
"Power should be zero-rated, or deemed export status should be granted to it under GST," he added.
Talking about the effect of GST on infrastructure, particularly Railways, Jain said that there is no clarity whether the current exemptions in the sector will continue or not.
"There is no clarity whether the exemptions will continue under GST. If not, then travelling by Railways can get expensive. The complete metro travel is also covered under negative list under current regime," Ernst and Young said in the webinar.
Currently, other than travel by AC coaches, all other services provided by Railways are exempted from service tax.
Jain, however, hoped that once the GST Council is set up, there would be clarity on these concessions.