Discoms say tax holiday for mega projects expiring in 2017 should be extended by five years
This is a test year for the success of the reforms package launched by India to address the persistent financial and operating weakness at state-owned electricity distribution companies (discoms), believes Fitch Ratings.
Progress under Ujwal DISCOM Assurance Yojana (Uday) programme, which was launched last year, should give some additional breathing space to the discoms, which is important for the overall electricity off-take from power generators in the country and improvement in their plant utilisation levels, the rating firm says in its outlook report on the Indian utility firms.
While tax breaks is obviously a major demand of the sector for this year's Budget, what is more important is the need for rationalisation of Goods and Services Tax (GST) on the power industry.
Speaking to DNA Money, Kulamani Biswal, director - finance, NTPC Ltd said, "There should be tax holiday for mega projects; there is one already, but it is expiring in 2017. There should be an extension of it by another 5 years."
The other expectation is to keep energy out of the GST ambit, or else, it will result in increase in tariffs, which will have a cascading effect on all goods and services.
"Taxes can be maintained at the same level as the previous tax regimes," added Biswal.
According to the power industry, taxes on equipment need to be capped at no more than 12-16%.
On the renewables side, one of the expectations from the upcoming Budget is to maintain high rate of depreciation.
Power Minister Piyush Goyal had recently emphasised focus on hydropower generation. Therefore, some impetus for it can be expected in the Budget.
"We believe that power stocks are up on hopes that the upcoming Budget may extend the 80 IA tax holiday, provide further impetus to renewable energy, particularly hydro projects, offer clarity on the applicability of GST (power product & service perspective), lower the cess on coal, and possibly, reduce corporate tax rates. We believe that the recent fall in G-Sec yields wherein the stock price performance is inversely co-related is also driving the rally in stock prices. Structurally, there is no change in cost or revenue or the demand, and hence, the rally is sentiment driven," shared Sachin Mehta, research analyst – power and oil & gas, Centrum Broking Ltd.
There is also a demand to have employment tax incentive extended by 3-4 years. Cess on coal should be either maintained at Rs 400 per tonne or reduced as there is cash push on the cost side of it.
The power sector would be needing significant investments to the tune of Rs 2.5 lakh crore this year just to adhere to strict emission norms likely to get effective from December 2017, and required tax breaks to promote the investment is surely welcome, says Ashok Khurana, director general, Association of Power Producers.
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