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. 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.
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.
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.
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.