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Key Points

The GST Council has made significant changes to coal taxation by removing the compensation cess. This reform reduces the overall tax burden on lower-grade coal that was previously disproportionately affected. Power sector consumers will benefit from an average reduction of Rs 260 per ton in coal costs. The changes create a more balanced tax structure that benefits both coal producers and end consumers.

Key Points: GST Council Removes Coal Cess to Benefit Producers and Consumers

  • Removes flat Rs 400/ton compensation cess that disproportionately hurt low-quality coal
  • Increases GST rate from 5% to 18% but lowers overall tax burden
  • Reduces power generation costs by 17-18 paise per kilowatt-hour
  • Rationalizes tax incidence to uniform 39.81% across all coal grades
2 min read

GST rationalisation to benefit both Coal Producers and Consumers: Coal Ministry

GST Council removes Rs 400/ton coal cess, rationalizes tax burden. Power sector to see Rs 260/ton average cost reduction, lowering generation costs by 17-18 paise/kWh.

"The new reforms reduce the overall tax on coal grades G6 to G17 - Ministry of Coal"

New Delhi, Sep 11

The Goods and Services Tax (GST) council has brought significant changes to the taxation structure of the Coal sector by removing the compensation cess, the Ministry of Coal said on Thursday.

Earlier, Coal attracted a 5 per cent GST along with a compensation cess of Rs 400 per ton. The Council has now recommended the removal of the GST Compensation cess and an increase in the GST rate on coal from 5 per cent to 18 per cent.

"The new reforms reduce the overall tax on coal grades G6 to G17, which is in the range of Rs 13.40 per ton to Rs 329.61 per ton. The average reduction for the power sector is Rs 260 per ton, which will reduce the cost of generation by 17 to 18 paise /kWh," the ministry said.

The reforms will also help in the rationalisation of the tax burden on coal as compared to its pricing.

Previously, a flat rate of Rs 400 per tonne was imposed as GST compensation cess without considering coal quality. This disproportionately affected low-quality and low-priced coal.

For example, G-11 non-coking coal, which is the majority of coal produced by Coal India Limited, had a tax incidence of around 65.85 per cent compared to G2 coal, where the incidence was 35.64 per cent.

With the cess removed, tax incidence across all categories of coal has now been rationalised to a uniform rate of 39.81 per cent.

Despite an increase in GST Rates from 5 per cent to 18 per cent, the reforms will have a lower overall tax incidence on the final consumer, due to the removal of GST compensation Cess.

Similarly, the removal of cess, rationalisation of duty, and correction of the inverted structure release liquidity, eliminate distortions, and prevent large accounting losses for coal producers, the ministry said.

The decisions of the GST council represent a balanced reform that benefits both coal producers and consumers alike.

- IANS

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Reader Comments

P
Priya S
Hope this actually translates to lower electricity bills for consumers. We've heard many promises before but the savings rarely reach the common people. Let's wait and watch.
Karthik V
Good move! The previous tax structure was punishing domestic coal production. This should help Coal India and other producers become more competitive against imported coal.
M
Michael C
As someone working in the power sector, this is a welcome change. The 17-18 paise reduction per kWh might seem small but adds up significantly at scale. Better for operational costs.
S
Shreya B
While this seems positive, I hope the government also focuses on renewable energy transition. Coal reforms are needed but we shouldn't lose sight of cleaner energy goals.
A
Aman W
Reducing from 65% to 39% tax incidence on common coal grades is massive! This should help control inflation in energy-intensive industries. Good economic decision.

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