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Indian end-users of coal brace up for GST from July 1

New Delhi (Platts)--29 Jun 2017 515 am EDT/915 GMT


Spot market activities have begun to sag in India, as end-users of thermal coal, both imported and domestic, brace up for the new unified tax structure, effective July 1.

Domestic coal consumers are welcoming the new Goods and Services Tax, or GST, which will bring down sales tax on coal to just 5% from the current 11%-12%.

A Chennai-based end-user said currently that he is buying coal from state-run Coal India Ltd. for which he pays a tax of around 11%, but under the GST regime, the total tax on coal will be 5%.

However, he has to continue to pay an additional Rs 400/mt, equivalent to $6.20/mt, as clean energy cess even after GST is implemented, he added. The clean energy cess will be called GST compensation cess from July 1 onward.

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Currently, he is not buying any imported coal because of the high seaborne coal prices and due to adequate supplies from Coal India.

Another source at a Chennai-based power company said that the cost of coal would certainly go up for consumers of imported material but there was some confusion as to how the 5% GST would be split between state taxes and central taxes.

"Unsure how things would pan out after July 1," the Chennai-based source said, adding that he has stocked up imported coal and will take further action only after obtaining clarity on the GST implementation.

A New Delhi-based coal trader said that small buyers might face difficulties as the new tax would be IT-enabled and that he expects some issues with its implementation.

Also, those buying on high-sea sales basis, will have to pay customs duty and integrated GST.

Coal cost would go up for imported coal buyers because they would have to pay 2.5% customs duty in addition to the 5% GST, said the New Delhi-based trader. At present, there is 2.5% customs duty and 2% countervailing duty, or CVD, on imported coal.

A source at Coal India said that the lower GST value will help bring down inventories at the mines, as more end-users would want to buy Indian coal. There were also speculations that Coal India might take this opportunity to increase prices. The coal behemoth last revised its prices around two years ago.

Market sources also said that the lower GST on domestic coal may encourage Indian buyers to procure higher-calorific-value imported coal, such as from South Africa, for blending with Indian material, in order to save costs.

This will hit the lower-CV Indonesian coal hard, they said.

Sources said that for stock and sale business, there is a 2% CVD and 5% Value Added Tax, but under GST, they will be saving 2% on CVD.


RISE IN PORT CHARGES


Sources said that GST may lead to higher freight rates, as port charges would increase following increase in tax on that to 18% from the existing rate of about 15%.

An India-based ship-operator said that they had booked some vessels last month based on the older port charges for arrival in India by mid-July, but the tax would go up in July. "It would be a negative thing in the short term," he said.

Two ship-operator sources said that traders were less willing to take new positions and that stock and sale activity was lower, as traders were less clear of the implications.

--Sapna Dogra, newsdesk@spglobal.com
--Shriram Sivaramakrishnan, shriram.krishnan@spglobal.com
--Edited by Arnab Banerjee, arnab.banerjee@spglobal.com

(Note: Corrects information related to rise in port charges)




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