The much-anticipated rollout of India’s biggest tax reform, Goods and Services Tax (GST), may come as a bit of a negative surprise to the country’s booming renewable industry. In a report assessing the probable implications of GST, the ministry of new and renewable energy (MNRE) estimated that after GST implementation, the cost of setting up and operations will increase by 12-16 percent for grid-connected solar photovoltaic projects and 16-20 percent for off-grid solar projects. It also estimated an increase of 11-15 percent in wind energy project costs. If the assessment is correct, the new tax regime will force a tariff hike and may counter the government’s push towards cleaner sources of energy. Speaking to Moneycontrol, Sumant Sinha, CEO of ReNew Power Ventures, one of India’s largest clean energy company outlined his views on what the new tax regime has in store for the industry.
Q: What are your first thoughts on the development till now and how do you see it impacting the renewable sector and your business?
A: The country’s move to the single tax system is a welcome move. The underlying rationale is to do away with the anomalies found in existing regime such as multiple taxes etc. The recent developments suggest that lawmakers are working hard on building consensus and necessary procedures to get a proper shape to the new GST regime. The consensus on GST rates and the announcement of different slab rates is a step in such direction, however the exact list of goods and services which would get covered in such slabs is yet to come – which the lawmakers must prescribe at the earliest. In general, on the impact of GST on renewable power generation sector, the sector presently is subject to several tax exemptions/incentives which results in our ability to procure capital goods/input and thus set up projects at a lower tax cost. If these incentives are taken away in the GST regime, it would enhance the costs. We urge the lawmakers to be considerate towards the sector and look at long term potential and benefits that the sector can generate for the economy. There is a definite need for clarity on exact goods and services which will be subject to tax at a particular rate as per the slabs to clearly determine the impact on sector.
Q: How do you see this impacting the various exemptions on capital goods and inputs used in the renewable energy projects?
A: In the existing tax regime (pre-GST), renewable power projects – both wind and solar are subject to several exemptions/tax incentives such as excise and custom duty exemption, vat exemption, refund etc. Thus, it is possible to procure capital goods/inputs for power projects with a lower tax cost. This in turn has helped companies expand capacities and provide a boost to India’s commitment to generate 175 GW power through renewable means by 2022. In the GST draft law available as on date, power (output for our projects) has been made GST exempt and there has not been any discussion to provide any incentive etc. to our sector on input side. The ambiguity on input is detrimental since a majority of projects in the renewable energy space are conceptualised factoring in the costs for equipment, land costs and other factors. If the input is taxed at rates that are higher than the current rates, the final landed costs of power will be higher making it unviable when compared with the power generated through traditional means such as coal. It is therefore imperative that the current benefits to renewable industry continue in the GST regime as well.
Q: How does this impact the pricing gains the industry has seen over the past two years?
A: It is important to understand that the benefits that were granted to renewable energy industry in the pre GST regime have been instrumental in driving the growth of industry. Single biggest impact of these benefits was the fall in price of power to Rs 4.00/kWh unit which attracted interest from global players in this sector. Should these benefits go, considering that there is an ambiguity on the input costs we will most definitely see an escalation in the per unit cost of power generated through renewable energy. Depending upon the classification, the costs for the project and the quotes that developers offer will get revised upwards. Clarity therefore on categorisation of goods and services will be most beneficial.
Q: With the four-slab tax structure in place now, what more clarity does the solar industry seek?
A: The four slab structure is a first step to drive consensus between the federal and state authorities. We do not have a clarity on which goods and services are getting covered in these categories. Therefore there is an urgent need for the authorities to look at this sector and offer some clarity on what rates will be applicable to what goods and services. This will help developers estimate with clarity their procurement costs and taxes around them. The draft law also mentions a zero rated supply which covers exports. The ambiguity is hurting the project planning and will lead to delays, hence it is imperative that authorities look at inclusion of supplies of input and capital goods to renewable power projects as zero rated supply and help facilitate the growth of industry.