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Tax sops for energy efficient
August, 04th 2009

The finance ministry is unlikely to favour a proposal by Bureau of Energy Efficiency (BEE) to provide tax sops to consumers on purchase of more energy-efficient electrical appliances such as refrigerators, television sets and air-conditioners.

The finance ministry has declined to endorse the proposal for tax advantages saying that it would be difficult to implement as products sold under BEEs star-rating have a huge price variation under different brands, a government official, close to the development, said.

The BEE had proposed to introduce a differential tax structure under which appliances certified as more energy efficient would attract lower tax in terms of excise duty and value-added tax (VAT). This means if you buy a five-star rated refrigerator, you are likely to pay less tax than if you buy a four or a three-star one.

The finance ministry has refused to allow such differential tax advantages as it believes that there can be gaps in the administration of the programme as prices of electrical appliances would differ from brand to brand, the official said on conditions of anonymity.

For instance, while a 1.5-tonne air conditioner from LG with a rating of two-star would cost Rs 17,500, an air conditioner of same capacity and energy-efficiency level from Hitachi would cost Rs 25,000. Hence, it is likely that Hitachis three star rated product will attract a tax exemption equivalent to that of a five-star rated LG product, even as the energy-efficiency levels are different, the official said.

BEE proposed zero-central excise duty for five-star and four-star rated appliances. For two and three-star appliances, it has proposed less than 4% excise. Those who buy unrated appliances will have to pay the regular tax rate of around 15%. The BEE, a power ministry body, rates appliances on the basis of energy consumption. Higher the energy use, lower the number of stars it would get.

The finance ministrys decision comes even as the government has made energy-efficiency certification or star rating for energy efficiency mandatory for a host of electrical appliancesair-conditioners, refrigerators, tube-lights and transformers from July 7, 2009. This would mean that selling of electrical appliances without such certification would be illegal and the government will penalize such manufacturers. All the companies manufacturing these appliances will have to comply with the norms by January 2010.

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