Tax cut on coal

The sales tax on coal in India has been reduced by more than half, as per reports on the 26^th of May, 2017. The duty on domestic coal would be reduced by the government from 11% to 5% and will be implemented from the 1^st of July, 2017.

Coal India Limited

Coal India Limited is the world’s largest coal miner and produces coal for power companies. It accounts for 80% of the domestic coal production. The reduction in the sales tax of coal will help it to find buyers for around 57 million unsold tonnes of mined coal. 

Analysis

The government has taken this step of reduction in sales tax to provide electricity across the country. 300 million people in India are without electricity. Coal generates more than 50% of the commercial energy in India. It accounts for 60% of costs for power companies and reduction on its duty will improve the health of merchant power firms. 

Domestic coal is of very low calorific value and has high ash content compared to imported coal, which has higher heating value. This is the reason why high quality coal is being imported from abroad which is expensive but quality oriented. 

Assessment 

The reduction in the coal tax would be beneficiary only to the firms who are finding it difficult to dispose off their excess inventories. It would hinder the global treaty made by India towards renewable energy commitments, India being the third largest emitter of greenhouse gases. There are two alternatives available to this situation. India can export the excess coal to the neighboring countries like Bhutan and Bangladesh after improving the quality of coal. India can also find alternative uses of coal in plastic and fertilizer industry. It can also replace wood in the making of furniture, fishing rods, etc which has been practiced and successfully implemented in foreign countries. This will thus prevent cutting of tress for wood, thereby protecting the environment. It will also ensure that coal industry and coal jobs are not destroyed.

With regard to providing electricity to the deprived households, the government should utilize more of solar and wind energy. Electricity from biogas and waste plastic has been discovered in India and its implementation on large scale will help to substitute coal for electricity generation.