The Power Ministry is seeking a five-year extension of a tax exemption on profits made by power companies as part of a slew of new incentives for the sector in the Union Budget.
These concessions include infrastructure status for coal production and processing, zero import duty on natural gas and compressed natural gas and the 5-year extension of an existing 10-year tax exemption on profits to power companies, set to expire 2010.
Section 80IA of the Income Tax Act currently allows tax exemption on profits for 10 consecutive years to the infrastructure sector including power. The Power Ministry now wants this benefit to be extended from 2010 to 2015. It is immediately unclear how much of a revenue impact such an extension could have on government tax revenues.
"We are seeking the extension of exemption benefits up to 2015 as it will help the ultra-mega power projects planned during the 11th Plan period," a power ministry official, who did not want to be named, said. The ministry plans to set up nine ultra mega power projects with a combined power generation capacity of 36,000mw. Each project will involve an investment of around Rs 16,000 crore to Rs 20,000 crore. Projects above 1,000 mw are generally considered ultra-mega projects.
The ministry has also sought inclusion of companies looking after ‘operation and maintenance’ in the power sector under the tax exemption. The exemption is at present limited to power generation companies.
To reduce the tax burden on state power utilities, the ministry has also sought an exemption from Section 195A noting that the provision raises tax liability on these state power utilities from around 34 per cent to 51 per cent. Deduction under this section can be claimed on the gross income, inclusive of tax.
In its demands submitted to the finance ministry ahead of the budget discussions, it has urged the finance ministry to extend the tax benefits to coal washeries, coal mining and independent liquefied natural gas (LNG) regasification plants. NTPC owns captive coal blocks, as do other power generation companies. Coal accounts for more than 78 per cent of power generation in India.
The ministry also wants Power Finance Corporation to be allowed to issue bonds under Section 54 EC, in addition to the Rural Electrification Corporation and the National Highways Authority of India.
On indirect taxes, the ministry has asked for waiver of duty on import of LNG and natural gas and also LNG regasification plants. It is seeking a waiver of basic customs duty on high power transmission equipment and construction equipment for hydro projects. The ministry has also demanded that transmission projects associated with mega power projects should have zero customs duty.
The power ministry also wants complete customs duty waiver for all equipment used for creating infrastructure used for decentralised power generation up to five mega watt in rural areas. Customs duty and excise duty waiver on naphtha (a feedstock for power generation plants) and compact fluorescent lamp (CFL) has also been sought.
It also wants naphtha to be given declared goods status so that it attracts a uniform sales tax of 4 per cent in all states. The other demands include concessional customs duty on inputs such as cement, steel used in setting up or expanding power projects. It has also demanded excise duty on the power sector to be reduced to 8 per cent from the present level of 16 per cent. It also wants the complete waiver of excise duty on fly ash products manufactured at the power plants from the present level of 8 per cent. The ministry has also asked for central sales tax to be made applicable to transmission business.