Govt may extend coal cess for green mission

The compensation cess on sin goods and luxury items such as liquor, automobiles, aerated water, cigarettes and other tobacco products, is scheduled to end by March 31, 2026, but cess on coal may continue in some form beyond that deadline to fund government’s environment protection mission, three people aware of the development said.

The coal cess, which was initially introduced on the “polluter pays” principle to mitigate growing climate crisis risks, saw a change in its purpose in 2017 when it was merged into the GST system to compensate states for their revenue shortfall for five years up to June 30, 2022.

The GST compensation cess is expected to continue till March 31, 2026, only to retire debts taken on behalf of states to meet their revenue shortfall. After that the GST compensation cess will end, but the coal cess may be restored in its older form to create a fund for environment protection, the people added.

At the time of launching the GST regime, the law assured states a 14% increase in their annual revenue for five years of the transition period from July 1, 2017 to June 30, 2022, and also guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal. While states have no claim on compensation from July 1, 2022, the cess continues till March 31, 2026 to service the back-to-back loans availed by states when compensation cess collection fell in 2020 and 2021 because of a slump in economic activities due to the Covid-19 pandemic.

“It is not yet decided what would be the new form of coal cess — whether to continue the previous system or new funding arrangements would be made to fund India’s commitment of protecting the environment,” one of the three people said. India, in its updated National Determined Contribution under the Paris Agreement has committed to reducing the emissions intensity of its GDP by 45% in 2030, from the 2005 level, and achieve about 50% of cumulative electric power generation capacity from non-fuel based sources, also by 2030.

As coal is likely to remain one of the key energy sources, mitigating its adverse environmental impact will also require funds, the second person said. “The template was made in the 2010 Budget,” he added.

The third person said this matter is of “tremendous importance but it was too early to conclude” what would be the contours of the cess in future. “A dedicated fund for mitigating environment and climate change risks is required urgently on the principle of polluter pays,” he said, adding that Budget 2023-24 may provide some details in this direction.

While introducing the coal cess in the 2010-11 Budget, the then finance minister Pranab Mukherjee said, “Harnessing renewable energy sources to reduce dependence on fossil fuels is now recognised as a credible strategy for combating global warming and climate change. To build the corpus of the National Clean Energy Fund [NCEF] announced earlier, I propose to levy a clean energy cess on coal produced in India at a nominal rate of INR 50 per tonne. This cess will also apply to imported coal.”

In 2016, when the scope of the fund was enhanced to also include clean environment initiatives, it was renamed as National Clean Energy and Environment Fund (NCEEF).

Initially, the cess was collected at INR 50 per tonne of coal since June 22, 2010. It was raised to INR 100 per tonne effective from July 11, 2014 and then to INR 200 per tonne from March 1, 2015. Later, the cess amount was increased to INR 400 per tonne in the Union Budget 2016-17 and renamed NCEEF.

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