Energy: taxes and transition in India
As the energy sector moves away from fossil fuels and shifts towards a greater share of renewables and greater electrification, these tax revenues will come under strain. While this transformation away from fossil fuels is likely to take place over the next two decades, the attendant reform in the tax regime is also likely to be very complex and involve nuanced political negotiations. Therefore, it is important to anticipate the fiscal challenges that may arise out of the transition and prepare for it. A starting point is to commence discussions on a gradual transformation of the taxation regime, going beyond just the energy sector or even just indirect taxes. In this context, there is a need for a deeper understanding of the role of the energy sector in the country’s public finance, and how this is likely to be impacted with the energy transition. Such an understanding can help to begin a conversation that can help identify suitable fiscal alternatives and taxation regimes to ensure that public revenue streams can be suitably reworked as the structure of the energy sector changes. The objective of this working paper is to develop such an understanding in order to build a discourse around this important topic, rather than to recommend any specific measures.