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Hi !
Can anyone explain what will be the impact on Utility Sector?
The Capital Costs involved in the development of power plants, transmission lines and distribution centres are huge. The proposed GST offers a favourable position to contractors. The GST treats ‘works contract’ as services. This, coupled with subsume of various taxes, such as CST, Entry Tax, etc. would ideally increase cost side efficiency in infrastructure development. ‘Work Contracts’ encompass Engineering, Procurement and Construction Contracts. Thus, the construction of any component in the value chain would appear to be prima facie beneficial. As with a single rate of tax against the contract, the cascading effect of procurement costs will decrease This may translate into a lower development cost for participants in the electricity value chain.
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Lessons to Be Learned Presently, all countries that have adopted GST have included electricity in their ambit. A developing country such as Malaysia has attempted to maintain a dual rate to protect the lower segments. Singapore, a more advanced but still a developing country has implemented a relatively low GST rate of 7%. Australia, Canada and New Zealand adopt a higher GST rate, ranging from 10-15%. However, these are developed countries
This trend shows that that Electricity, as a basic good, should be maintained within the purview of GST, and that appropriate credit set off should be allowed. As the stage of development of a country progresses, the GST rate consequentially also increases.
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