Centre Details GST Reforms in Coal Sector, Claims Rationalisation of Tax Structure and Lower Power Costs [Read Order]
The Central Government came out with a response on coal sector reforms implemented in the 56th GST Council meeting to the questions raised in the parliament related to the rationalisation of tax burden across coal grades, the effect on power generation costs, the impact on domestic coal producers and import substitution under the Aatmanirbhar Bharat initiative, and whether the reforms had eased liquidity pressures by correcting the earlier duty structure.
Firstly, it was stated that the GST Compensation Cess of ₹ 400 per tonne on coal has been abolished. Further, the GST rate on coal saw a sharp uptick from 5% to 18%.
According to the Central Government, long-standing distortions in the industry have been resolved by the removal of the ₹400-per-tonne compensatory cess. The Ministry of Coal informed the Rajya Sabha that the earlier regime caused unequal tax incidence across coal grades and led to vast pools of unutilised input tax credit, which stressed liquidity for producers. With the changes in the GST, tax incidence has been rationalized with uniformity across coal grades.
The Centre stated that the reforms have also resulted in a direct impact on the power sector. The rationalised tax structure has led to an average reduction of approximately ₹260 per tonne in the coal supplied to power generators, which is believed to reduce the cost of generation by 17 to 18 paise/kWh.
Additionally, the Ministry pointed out that domestic coal is now more competitive when compared to imports, which is expected to promote substitution in favor of regional producers and advance the goal of Aatmanirbhar Bharat.
Coal firms are believed to have benefited from the adjustment of the inverted duty structure, which has improved cash flow and brought input and output tax rates into alignment. According to the Government, the measures constitute a structural shift aimed to stabilize prices, boost the financial health of coal producers and enhance the efficiency of coal-based power generation.Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
