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How will the higher tax rate impact the solar power sector?

How will the higher tax rate impact the solar power sector?


A day after the Goods and Services Tax (GST) Council, following its three-day meeting in Srinagar finalised a tax rate of 18 per for solar modules, independent experts gave a mixed bag of reactions to the move. Power, coal, mines and renewable energy minister Piyush Goyal had on Friday said the 18 per cent rate for solar will not impact the solar power tariffs. “Tariffs for solar projects vary from project to project. The rise will be compensated by the decline in corruption and operational difficulties,” Goyal said at a media conference. He added the prices of solar and wind energy have hit record low and the industry is now able to stand on its own feet without any support.

“Excise duty does not apply on solar panels and key states have given tax exemption on the modules. If a tax of 18 per cent is imposed then suddenly there will be a spike form 0 per cent to 18 per cent,” said Priyajit Ghosh, Partner-Indirect Tax, at consultancy firm KPMG, adding a five per cent rate for solar panels would have been more logical. Ghosh also added the higher rate may hurt the sentiments of developers who were enjoying tax-free imports so far as modules currently account for 50-60 per cent of the total project cost. According to Abhishek Poddar, Partner at consulting firm A T Kearney, the higher tax may be because of the recent fall in costs of solar tariffs which have fallen to record low this year and have fallen below conventional thermal-power tariff. He said overall the higher rate may not have much of an adverse impact on the solar sector.

“I do not think at an overall level, it is going to dampen the mood for solar. I think the viability of solar in the Indian context will remain. If it were a lower GST rate, then that would have been an added incentive but at an overall level I do not think it will make a difference in the long run. Those who have recently bid aggressively assuming that prices of modules or panels will have a lower rate will face slight problem for the transitionary period but I think over time the price economics will adapt to the new regime,” Poddar said. According to Vinay Rustagi, Managing Director at BridgeToIndia, a renewable energy-focussed consultancy firm, the sector does not need any more subsidies thanks to the sharp reduction n tariffs. “That is a sensible move in the long run because an independently viable non-subsidy dependent sector is naturally more sustainable,” he said.

The government aims to scale up India’s solar power capacity to 100,000 Megawatt by 2022. This will be part of the 175,000 Mw renewable energy target that the government wants to achieve. However, clarifying on the matter, ministry of new and renewable energy secretary Rajeev Kapoor told ETEnergyworld that the renewable energy sector and all parts related to it will remain under the 5 per cent tax slab. “It is our understanding that under chapter 85, the GST council has classified all renewable energy based devices and spare parts under the rate of 5 per cent. However, there is a mention of panels and modules under a separate heading that attracts 18 per cent duty. This appears to be an anomaly in view of a very clear description where all RE devices and systems are under the 5 per cent heading. We are sure this anomaly would be addressed,” he said.

Anand Gupta Editor - EQ Int'l Media Network


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