Domestic credit rating agency ICRA said on Wednesday that the Goods and Services Tax (GST) levied on the annuity payments of BOT-HAM projects will have a limited impact on the project cash flows.
BOT-HAM refers to BOT (build-operate-transfer)- HAM (hybrid-annuity-model) used to construct national highways. The National Highways Authority of India (NHAI) pays private players to construct roads under the model. However, the ownership, toll collection, and maintenance remain with the government. The government pays the private player a fixed annuity fee during the years they build and operate the road.
The GST Council had issued a circular on 17th June 2021 stating that GST would be applicable on the annuity payments for HAM projects that are received during the operations period. A policy circular was issued by the NHAI on 1st September 2021, clarifying the 12% GST applicability on the same. However, ICRA has said that this GST levy will have a limited impact on the project cash flows.
“With NHAI reimbursing additional tax burden on account of GST levy on annuity payments for BOT (build-operate-transfer)-HAM (hybrid annuity model) projects, there would be no impact on the cash flows, project debt coverage and return metrics of the concessionaire,” said Vinay Kumar G, the assistant vice president and sector head of corporate ratings of ICRA, in a statement.
GST is applicable on BOT-HAM projects on the grants received from the NHAI during the construction period and the operation and maintenance payments received during the operations period. However, there had been no clarity on the applicability of GST on the annuity payments received during the operations period. This was due to the different interpretations of the GST notifications, as well as other appellate rulings.
For projects bid between 1st July 2017 and 13th October 2017, the statement said that the NHAI would not reimburse the GST amount as bids were invited, including GST. The concessionaires can use the input tax credit (ITC) accumulated during the construction period to set off the GST liability on the annuity payments received during the operations period.
“Thus, the impact of GST liability on annuity was expected to be limited on the project return metrics with cash outflow towards GST liability being restricted to the last three-year period of operations,” the statement further said.
However, as per the latest circular issued by the NHAI on 1st September 2021, the NHAI will reimburse the net impact of the additional GST on an annuity (adjusted for ITC) to the concessionaire. According to the statement, this will be for projects bid on or before 30th June 2017 and between 14th October 2017 and 16th June 2021.
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