Government contemplate to Include Electricity in GST Framework

The inclusion of electricity in the framework of the goods and services tax (GST) may become a reality soon, as the government is considering all alternatives in this regard. Once electricity is subject to GST, manufacturers can use the GST credit from their electricity expenses to offset some of their tax bills.

The government’s decision aims to boost the sector’s competitiveness, said a top source close to the development on Tuesday.

Currently, electricity utilities include GST in their prices rather than collecting it separately from customers. As a result, an embedded tax is included in the price of electricity, which has a knock-on effect on the manufacturing sector.

“As the power ministry is well versed in its potential effects, especially on the revenue loss for the industry, state revenues, and household electricity expenses, the Centre and states are jointly making all-out efforts to explore the possibility of keeping the lower state electricity duties on integrating electricity into GST,” a source familiar with the matter said.

According to the source, including electricity in the GST framework is projected to help practically all coal-fired power plants in their cleaner energy and hydro projects, and would serve as a test case for extending GST to cover petrol, diesel, crude oil, natural gas, and jet fuel as well. However, it has been learned that the government has already hired certain audit and consulting organizations to analyze this transition.

“Based on the analysis findings, we have gathered from industry feedback that the GST could potentially drive down electricity costs for businesses due to the ability to claim input tax credits. The findings also indicate potential benefits for industries, with reduced levy expenses,” one industry insider said.