GST poses a big risk for Indian solar industry: Report
Dated 14th March, 2016
Renewable sector, currently a beneficiary of several indirect tax exemptions, may be a big loser if goods and service tax is implemented since the bill proposes to revoke most of these exemptions, according to Bridge to India. Costs and tariffs are expected to rise by 12-20% as a result.
GST is a key taxation reform as it seeks to simplify a complex maze of state and central taxes by subsuming these into a single tax levied at the point of consumption. According to reports the Bill could be passed by July 2016. If the bill is indeed passed as anticipated, it is expected to be implemented almost immediately.
Bridge to India, a renewable analyst house, feels if GST is implemented, input cost or tariff will rise by anything between 12-20% in the sector and this would wipe out the pricing gains of the past two years.
"A cost increase of this magnitude would also put viability of several projects in jeopardy. The Ministry of New and Renewable Energy (MNRE) is in dialogue with the Department of Revenue to ensure that renewable power equipment is exempted from GST. A recently concluded study by MNRE suggests that solar project costs and tariffs could go up by 12-20% on account of the new indirect taxation proposal. Such a material increase would erode most of price gains made in the past two years and also put viability of several ongoing projects in jeopardy," said Bridge to India in a statement.
Costs would rise because at present there is no import duty or indirect tax is applicable on solar modules but under the new regime, GST of 17-20% would be payable thus increasing costs.
Local value added tax (VAT) and other levies such as excise, entry tax and Octroi on solar modules and the complete system is around 5% in most states because of a slew of exemptions. These would go.
The MNRE report estimates that the cost for all equipment used in a solar project -- solar modules, inverters, cables, batteries and structures will go up adding up to a differential of 12-20% from current levels.
"Successful passage of the GST bill, although highly beneficial to the wider economy, would severely impact both ongoing and new projects in the sector. MNRE is believed to be pushing for a waiver from GST arguing that a sudden increase in cost would lead to disruption in the sector and delay implementation of policy targets.
Bridge to India is of the opinion that the solar sector has a strong case for an exemption. The government has put strong focus on the sector to achieve a diversified set of policy goals including energy access, energy security and climate change mitigation.
Moreover, as the sector is still relatively small, an exemption would not lead to significant loss of revenue in the short-term.
(This article is published in The Economic Times on 14 March, 2016)