India: Modi Government Proposes removal of Clean Energy Cess on Coal
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According to the latest reports, the Indian PMO (Prime Minister Office) has proposed to remove a clean energy cess of INR 400 per tonne on the imports and production of coal. The proposal has come with an intention to help coal users especially power producers to finance and install pollution-curbing equipment with the money that will be saved from the abolition of the cess.
The proposal is said to be a big win for the coal industry which has was urging for government help, citing high debt levels and burgeoning payment dues from government-owned power distribution companies. If implemented, coal will become more competitive in price with solar and wind energy and the price gap between coal-fired power and renewables would be reduced.
Changes in tax mechanism of coal
Since its inception, the clean energy cess on coal has been increased three times, from INR 50 (USD 0.8) per tonne in 2010 to INR 200 (USD 1.6) per tonne in March 2015 and INR 400 (USD 3.2) per tonne in March 2016. With the introduction of the Goods and Service Tax (GST) in India in July 2017, the Clean Energy Cess was abolished by the Taxation Laws Amendment Act, 2017. A new cess on coal production, called the GST Compensation Cess, was put in its place at the same rate of INR 400 per tonne. The GST Compensation Cess is aimed at filling in the budget deficits that Indian states faced following the GST introduction. This last round of changes effectively means continued taxation of coal production as a source of funding for various regional development needs.
How government will loose a source of revenue?
With the abolition of clean energy cess on coal, the government will lose an important source of revenues collected in the form of indirect tax.
According to data compiled by the Comptroller and Auditor General, the centre, has already collected INR 53,967 crore in the form of Clean Energy Cess between 2010-11 and 2016-17. In fact, total cess collected by the government since its inception in 2010-11 till 2020 is likely to touch INR 1.51lakh crore. National Clean Energy Fund (NCEF) was established in 2010-11 for funding research and innovative projects in clean energy technology by levying a Clean Energy Cess on coal produced in India and imported coal.
An abolition of the cess could also subject the federal government to further criticism from state governments, since they received the realized revenue from the government to compensate for shortfalls due to the implementation of a new tax structure in 2017. However, reports state that if the proposal is not implemented then some form of subsidy has to be given by the states in order to keep the power producers functioning and the carbon tax abolition would make up for some shortfalls.
