Finance Minister P Chidambaram is likely to come up with a major package of tax incentives and breaks for the power sector.
The tax incentives and breaks being considered will be in conformity with the current political thinking on the bijli, pani, sadak factors that could bring in rich dividends for the Congress-led Government at the centre.
Providing power to 100,000 villages and one crore households is part of the political agenda taken up by the Government. In order to realise this agenda, a comprehensive new scheme may replace the current accelerated power distribution, and Kutir Jyoti schemes, sources said.
The sources said that focus would be to augment power distribution and reinforce the need to improve the revenue flows for the state electricity boards that are in the doldrums.
The first step proposed in this direction is to provide complete excise exemption on distribution equipment and levy a nominal 5 per cent duty on imported equipment.
Currently domestic manufacture of distribution equipment attracts 16 per cent excise levy while the customs duty on imports has been pegged at 27.6 per cent.
The second measure being considered is to provide deductions on improvements in distribution network. Tax deductions can be provided under Section 80-1A of the Income Tax Act to encourage augmentation of distribution networks and improve power supply.
{{/usCountry}}The second measure being considered is to provide deductions on improvements in distribution network. Tax deductions can be provided under Section 80-1A of the Income Tax Act to encourage augmentation of distribution networks and improve power supply.
{{/usCountry}}Chidambaram may also consider a power ministry proposal to slash customs duty on spares for power plants and renovation and modernisation of projects to 5 per cent. Currently, spares import attracts 36 per cent duty, which includes 20 per cent basic customs and 16 per cent countervailing duty.
After having assessed the impact on revenues, income tax exemption for power projects may be extended to 2012. This exemption under Section 10 (23G) of IT Act would end by 2006.
Citing environmental reasons, the Finance Minister may also propose a cut in import duty on coal to 5 per cent from the prevailing 15 per cent. Low ash coal worth 38 million tonnes is required for power generation annually.