Consumers pay Rs 25,000 cr for high coal tax

(This story originally appeared in on Jan 29, 2021)

NEW DELHI: Petrol and diesel are not the only sources of energy for which consumers are paying through their nose because of high taxes and different tax regimes on input and final products. A myriad of taxes and levies on coal, which accounts for 55% of electricity generation, and non-inclusion of electricity in GST regime is costing power consumers upwards of Rs 25,000 crore a year.

Complete data from Office of Coal Controller and CEA shows power consuemrs – both industrial and domestic – paid 26 paise per unit on the 987682 million units of electricity generated in 2018-19 through coal on account of different tax regimes for input and the end product.


Coal, which is the primary input for thermal generation, is under GST. But electricity, the end product, is not. Since coal producers cannot claim input tax credit, they add taxes to the cost of power, which ultimately goes to keep consumer tariffs high.


The levies and charges on represent a mark-up of between 85% and 94% of the basic price of coal. Even after disregarding royalty, which goes to states where coal is mined, the remaining levies represent a mark-up of 75% over the basic price and directly impact the cost of power.

For example, the basic price for G-11 grade of coal, the most common for power generation, produced by SECL is Rs 955 per tonne. But the final ex-mine price for generators nearly doubles to Rs 1,849 per tonne due to taxes, levies and sundry charges.

Coal currently attracts 14% royalty on basic price, 5% GST, Rs 400 per tonne GST compensation cess, National Mining Exploration Tax at 2% of royalty and District Mineral Foundation charge at 30% of royalty. Then there are the Paryavaran and Vikas Upkar levy of Rs 23 per tonne and Seema Kar/Terminal Tax of Rs 2 per tonne. In the case of Western Coalfields Ltd, there is also a forest tax of Rs 57 per tonne.


There are additional charges for crushing, surface transportation and ‘coal evacuation’ that add between Rs 121 and Rs 177 per tonne to the ex-mine price.Besides, a multiplicity of electricity taxes, which vary by states and across user categories, add to the cost of power. This forces discoms to charge higher rates from industrial consumers to compensate for keeping domestic tariffs low. This renders Indian manufacturing globally uncompetitive.

The situation is similar to the oil industry where producers are under the GST regime but petrol and diesel, the end-product of crude, are not and are taxed heavily by both the Central and state governments. Taxes currently account for more than 60% of the pump prices.

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