Private power firms likely to get tax holiday extension

A Committee of Secretaries (CoS) set up to iron out bottlenecks impeding the growth of independent power producers (IPPs), is understood to have favoured continuing the tax holiday to the sector, besides relaxing the Withholding Tax on external commercial borrowings by them.

In its last meeting on February 22, the CoS chaired by Principal Secretary to the Prime Minister’s Office (PMO) Pulok Chatterji, gave a patient hearing to independent power producers on various issues affecting their growth.

 

The electricity generators have also told the PMO that they are looking forward to the inclusion of power in the negative list of service tax and continuation of mega power benefits to the utilities during the 12th Plan period beginning from April 1. This includes exempting mega and ultra-mega power projects from customs and excise duty to reduce capital costs.

From a long wishlist, some of the proposals could find their way into the budget. It is learnt that the PMO is sympathetic to their demand for extending tax holiday under Section 80-1A of the IT Act for five more years, and exemption of customs duty on imported coal.

 

The power producers have also told the PMO that there is a need to do away with the mandatory requirement of Central Electricity Authority’s certification in case of mega projects as it has a cumulative effect on project completion and enhances the cost of electricity generation. As part of the mega power project benefits, the power generators have asked for excise exemption to goods supplied to mega projects prior to February 28, 2011, where the threshold limit of 1,000 MW was constituted by multiple units of varying sizes instead of a single unit.

Among their key budget proposals, power producers have sought the scrapping of the central sales tax in view of the finance minister’s earlier assertion to drop it in a phased manner. They have also demanded inclusion of electricity in the goods and service tax or GST besides asking for seamless processing of refunds under the GST regime.

 

The power industry captains have proposed abolishing the 5 per cent import duty on coal as the duty coupled with high ocean freight have rendered imports unviable. They have also demanded waiver of Withholding Tax in case of ECBs, saying this is an impediment in bringing in foreign investments in the power sector.

The producers have also asked the government to allow companies venturing into power sector to raise funds by issuing tax-free bonds and also exempting power distribution and generation companies from the Minimum Alternative Tax under Section 11-5JB of the IT Act to incentivise infrastructure development.

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