Post GST, effective coal prices drop by 2-3% for Indian aluminium producers

The implementation of the Goods and Service Tax (GST) regime has resulted in the decrease of effective coal prices by 2-3 per cent for aluminium producers in India. The new tax structure has subsumed several additional taxes making power a little cheaper for the domestic players in the energy-intensive aluminium sector.

Under the new regime, coal attracts 5 per cent tax compared to the earlier 12 per cent tax. Prevailing environmental taxes, local taxes and a number of other charges have effectively brought down the effective tax rate by 2-3 per cent, instead of 7 per cent.

"In effect, the effective tax rate on coal has reduced by 2-3 per cent, which is also considerable given the volumes the coal consumers purchase," said an official at the Coal Consumers Association.

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Aluminium is an energy-intensive sector. Uninterrupted power supply is required to produce molten aluminium from refined alumina using Hall-Heroult method of electrolysis.  Moreover, coal tar pitch is used in making anodes for aluminium smelting. Reduction in the effective coal prices mean the input cost of aluminium will come down proportionately.

There is another aspect to GST-induced effective coal price reduction. Aluminium producers would probably be calculating the net impact on input costs and the input tax credit which they can avail.

"The major consideration is if tax levied during ferrying of coal will be included as [the] total cost of coal or not. In case logistics cost is separate, it effectively brings down net coal prices," a senior sector analyst said.