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

New Delhi: 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.