The government is set to extend the takeoff time for availing the existing tax-exemption facility for power-sector investors until 2018 to lure huge investment needed to achieve ambitious targets.
Under the existing income-tax rules, private investors in the sector can enjoy tax-breaks for 15 years upon starting commercial production in their power plants by June 30, 2016.
The power ministry recently urged the finance ministry to take initiative for extension of the takeoff period beyond the June 30, 2016 cutoff time for availing the tax benefit, reports the FE.
After extension, the tax benefit would be valid for the power plants that will be able to start power generation within the stipulated time, by December 31, 2018, sources said.
Extension of the tax holiday for power-sector investors has been under active consideration of the government, as many of the investors are yet to start production due to the gas-supply shortage facing the country.
A senior tax official said the tax authority will implement the instruction of the Prime Minister shortly.
The government has held out bounties in terms of income tax, customs duty and Value Added Tax (VAT) waivers to impendent power producers (IPP) since 1996 under the Private Sector Power Generation Policy.
And the perks worked like charms—private sector made a huge sum of investment in the power sector to reap the benefits. Participation of private sector in power production now stands at 46 per cent.
In the power sector master plan 2010, the government has targeted to generate some 24,000 megawatts (mw) of power by 2021 and 40,000 megawatts by 2030.
In the letter, the state minister for power, Mr Hamid, noted that the government has curtailed in phases many of the tax benefits it had offered for IPP in 1996.
“Cutbacks on the tax benefits will increase cost of power generation and tariffs, resulting in requirement of government subsidy,” he wrote to justify the extension move.
Sources concerned said there are some investors in the pipeline who would make investment in power generation. The power ministry needs time to sign agreements with them.
A number of entrepreneurs have shown their interest to invest in power production being encouraged with the 15-year tax holiday.