The Goods and Services Tax (GST) Council’s treatment of goods such as commercial LPG, hybrid cars, and renewable energy components has missed an opportunity to back environmentally friendly goods, according to an industry official and an economist.
The GST Council on Thursday finalised the rates and cess for most of the goods under the purview of the tax.
Among these, it set a rate of 18% for commercial LPG, and 5% for all renewable energy devices and spare parts, although the Ministry of New and Renewable Energy had requested an exemption for these items.
“This is an opportunity lost by the government regarding auto LPG (a type of commercial LPG),” Suyash Gupta, Director General of the Indian Auto LPG Coalition, said in an interview.
“We had asked the government for parity treatment for all kinds of LPG, domestic as well as commercial.”
LPG for domestic use would be taxed at 5% while LPG used commercially and in cars would be taxed at 18%.
This would also encourage theft, since people already transfer LPG from domestic cylinders to commercial containers to avoid the higher tax, Mr. Gupta said.
“Auto LPG also has far lower nitrogen oxide emissions than even CNG, let alone petrol and diesel,” Mr. Gupta added. “The issue is a lack of a policy ecosystem to promote cleaner fuels, whether LPG or battery power.”
Under GST, the government would also levy cesses on certain sin and luxury goods, over and above the highest tax rate of 28%.
In this system, it has clubbed together sport-utility vehicles (SUVs), which usually have higher emission levels, and hybrid vehicles, and set the cess at 15%.
At the same time, the cess on ultra-luxury products like private planes and yachts has been set at a relatively low 3%.
“What is the message they are trying to give here, that they are as okay with people buying polluting SUVs and cleaner hybrid cars,” said a senior economist, who did not wish to be identified. “The lower cess rate on private planes (than on hybrid vehicles) also gives a wrong impression.”
“Solar power prices have gone below grid parity and wind power prices are also almost at grid parity despite only one bid (auction for 1 GW),” Power, New and Renewable Energy, Coal, and Mines Minister Piyush Goyal said at a press conference.
“Twenty-five years later, other forms of power would be 3-4 times higher than they are now. Solar, wind and hydro would be affordable forms of power. I don't think GST rates will impact my sector’s tariff,” Mr. Goyal had said at the time.
In January, the Ministry of New and Renewable Energy had made a presentation to the GST Council seeking zero rate of tax on the ground that any upward impact on tariffs due to GST would have significant adverse effects on the industry.
“Under GST, it’s not just the output rate that matters, but what also matters is the input rate,” said Anita Rastogi, Partner, Indirect Tax, at PwC India.
“So, renewable energy component providers will have to do the maths to see whether the rate of 5% on their output actually works out to be more expensive.”