Corporate tax cut a positive for power sector: ICRA
New Delhi [India], Sep 30 (ANI): The recent announcement by the government to lower the corporate tax rate is a positive development for the power sector as it will allow power generators with cost-plus power purchase agreements (PPAs) to pass on lower tax benefit to power distribution utilities (discoms), ICRA said on Monday.
ANI
Sep 30, 2019 18:30 IST
New Delhi [India], Sep 30 (ANI): The recent announcement by the government to lower the corporate tax rate is a positive development for the power sector as it will allow power generators with cost-plus power purchase agreements (PPAs) to pass on lower tax benefit to power distribution utilities (discoms), ICRA said on Monday.
The extent of benefit that will accrue to discoms from the power generation and transmission segments (mainly from central and state utilities) will be about Rs 2,500 crore annually, according to ICRA estimates.
"The benefit accrued to discoms in turn will enable them to lower their cost of supply and hence reduce the gap between average tariff and cost of power supply by about three paise per unit sold at all India level," said Sabyasachi Majumdar, Senior Vice President and Group Head for Corporate Ratings.
"However, the extent of reduction in gap for the discoms will vary across the states depending on the mix of cost-plus and bid-based PPAs and share of supply from central sector companies."
The effective tax rate for most of these central sector utilities over the past two years was in the range of 21 to 23 per cent, partly due to availability of tax holiday benefit (where minimum alternate tax is applicable) for a large portion of their projects.
The power generation projects including renewable power projects having PPAs based on competitive bid based tariffs and under the erstwhile preferential tariff route are expected to benefit from the lower tax rates.
For a wind or solar power project commissioned recently, ICRA estimates the reduction in tax rate will improve the internal rate of return by 40 basis points, though the impact on debt coverage metrics is not material.
Within the overall annual energy generation of 1.25 lakh crore units in 2018-19, about 67 per cent is cost-plus tariff based predominantly from central and state sector utilities. (ANI)
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