India Regulatory Brief: New Tariff Policy for Power Rates, Relaxation of Compliance Norms for Start-Ups

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New Tariff Policy to Regulate Power Rates

The Indian government has approved new amendments to the National Tariff policy, 2005, which will tighten regulations on power tariffs and promote clean energy. Amendments to the tariff policy include the insertion of the word ‘necessarily’ in Section 61 of the Electricity Act 2003, empowering regulators to determine power rates at a utility level. The new regulations authorize customers to make use of smart meters to check power thefts and net metering. Additionally, they allow customers to interact with distribution companies and save money by switching off appliances during peak hours. Power companies can now expand their existing generation capacity to 100 percent and pass central taxes onto consumers. Other recommendations in the policy include promoting the use of renewable sources of energy and creating an environment enabling competition, efficiency and improvement in power supply.

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Special Economic Zones to be Exempt from the Minimum Alternative Tax

Over 200 enterprises operating in Special Economic Zones (SEZs) could be exempted from the Minimum Alternative Tax (MAT) of 18.5 percent on their book profits. The move aims to revive domestic enterprises and provide a much needed lift to declining exports. The Ministry of Commerce and Industry has also introduced a new monitoring mechanism that examines remedial measures to promote exports in India’s crucial markets as well as existing Free Trade Agreements. 

The Ministry of Finance has, however, questioned the removal of MAT on SEZs. The tax cut would lead to a huge loss of revenue for the government, which anticipates tough challenges on account of increased expenditure based on the Seventh Central Pay Commission recommendations. According to official data, the corporate tax revenue exemption of SEZ units in 2014-2015 was estimated to be US $2.72 billion (Rs 18,394 crore). Official sources note that this could have been higher if MAT was not levied. SEZs are estimated to have total investments worth US $53.6 billion (Rs 3.63 lakh crores) and employ around 1.5 million workers. Most SEZs are engaged in the export business.

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Relaxation of Labor Compliance Norms for Start-Ups

Start-ups will be exempt from inspections related to important labor laws. The government will grant exemptions from several laws, including the Industrial Disputes Act, the Contract Labor Act, the Employees State Insurance Act, the Trade Union Act, and the Employees Provident Fund and Miscellaneous Provisions Act. The decision by the labor ministry comes after Prime Minister Narendra Modi officially inaugurated the Start-up India initiative on January 16 in a bid to boost job creation and entrepreneurial climate in the country.

New businesses identified as start-ups by the Department of Industrial Policy and Promotion (DIPP) will be allowed to self-certify with labor laws in the first year. In the two years following establishment, a start-up may be inspected  after the central analysis and intelligence unit of the labor ministry approves a written complaint  that warrants inspection. The ease in compliance norms for start-ups has been communicated to all the concerned regulatory bodies and autonomous institutions, such as the Employees’ Provident Fund Organization (EPFO), Employee’s State Insurance Corp. and the Labor Commission.

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