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Indian Industry Body Criticizes Tax On Coal Imports

by Mary Swire, Tax-News.com, Hong Kong

20 May 2011


Leading industry body the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged the government not to impose a 5% countervailing duty (CVD) on imported coal as it says this will lead to an increase in the power tariff and fuel inflation further.

ASSOCHAM says that nearly two-thirds of power generation in the country is coal-based, and the shortage of coal means that a large proportion of the fuel has to be imported.

Countervailing duties are imposed on imports under WTO rules and are designed to negate the effects of cheap imports from countries which subsidize production, thus harming producers in the importing country.

It is estimated that India imported 83m tonnes of coal in 2010-11 and the figure is likely to go up to 142m tonnes in the current fiscal year. The price of coal in global markets has shot up by about 35%.

“A further imposition of CVD at 5% will not only make imported coal-based power plants unviable but also lead to a steep rise in the power tariff,” said D S Rawat, Secretary General of ASSOCHAM in a letter to the Finance Minister, Pranab Mukherjee.

The challenge to India is the lack of a suitable nationwide electricity grid, with the current grid only supplying one in three of the population. India’s ambitious programme of adding to its power generating capacity relies heavily on coal as a source of fuel.

A levy on coal producers started on July 1 last year, and was the first step by one of Asia’s largest energy consumers to charge companies for fossil fuel pollution. Coal is taxed at INR50 (USD1.1) per metric tonne.

The government planned to use some of the revenue raised from the coal tax to invest in new power transmission lines which would distribute power from clean energy projects.

TAGS: tax | India | energy | tariffs | excise duty | trade

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