GST on Coal: Current Tax Rates and Their Impact

Coal is the cheapest fossil fuel, not only in India but around the world. It is the primary input in the manufacturing of many other materials like steel, cement and electricity generation. The coal industry is very crucial to the performance of the Indian economy. GST rate on coal has been announced by the GST council after a meeting between finance minister of India and all states. Let us see what impact will the GST rate have on the coal industry.

Current Tax Law on Coal

Under the Central Excise Act and VAT under the state laws, coal is charged an excise duty. There are a lot of hidden costs involved in the transportation of coal within a state or interstate. An average VAT rate of 5-6% is charged currently on coal and other products generated from the manufacturing of coal. Stowing excise duty is charged on coal and would not be subsumed under GST. 

Excise duty is levied on coal currently at an average rate of 6.8% after abatement. An average total tax of around 12% is currently charged on coal. Currently, there are a lot of hidden tax and cost in the transportation of coal to the final destination, and it becomes expensive for the end consumer due to the high logistics cost. An exemption has been provided on charcoal from VAT by many states in India. Therefore, charcoal is currently cheaper than other coal products. Clean environment cess is also charged on coal at the rate of Rs 400 per ton. Environment and development or forest and terminal tax charged by certain states like Chattisgarh and Madhya Pradesh would continue and would not be subsumed under GST.

GST Rate on Coal

The Indian government has reduced the tax burden on coal producers by placing coal under the 5% tax bracket under the GST law. LPG and kerosene have also been kept under the same bracket. It is expected that the price of the LPG gas cylinders would reduce due to the lower tax rate and cheaper logistics cost.

Impact of GST Rate on Coal

Coal is required in mass numbers by numerous industries all over India. Coal is primarily transported through trains as India has one of the best railway networks. Transportation of coal from the coal mines to the factory or construction sites is an expensive affair due to the service tax charged at the rate of 15% on the transportation services. Under GST, the tax rate on transportation services through rail has been charged at the rate of 5%. Clean environment cess would not be subsumed under GST. The coal industry would have fewer logistics cost due to the reduction in the tax rate on both goods and service and a better-regulated tax system.

Conclusion

The reduction in the tax rate of coal is likely to be beneficial to the Indian economy. Coal is an important input in many different types of industries. Thus, it will beneficial to the construction, iron, and power generating industries.