5% GST on solar panels not to hurt renewable energy sector: report
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New Delhi: A likely decision by the powerful federal indirect tax body, the Goods and Service Tax (GST) Council, to levy 5% tax on solar panels instead of 18% proposed earlier could mean only a marginal rise of 4% in solar power projects cost on account of bringing the item under taxation, said consulting firm Bridge to India (BTI) in a note on Monday.
Reducing tax exemptions is one of the underlying principles of GST. The 5% tax rate on solar panels would effectively mean that bringing panels under the tax net will not hurt the flourishing sector – something that the solar power industry feared last week. The solar industry had so far enjoyed tax exemption.
Last week, BTI had said that the GST Council’s decision to set 18% tax rate for solar modules as compared to a present effective rate of zero will increase overall project costs by about 12%. It had also said that the new rates would hit more than 10 gigawatt of ongoing utility scale solar power projects and pose a threat to their viability.
However, union revenue secretary Hasmukh Adhia tweeted on Sunday saying that all solar equipment and their parts will attract only 5% GST, indicating that the GST Council meeting on 3, June, is likely to make the change in the schedule of tax rates.
The schedule of tax rates that the council uploaded in the website of Central Board of Excise and Customs on 18 May said that the list will be subject to further vetting during which it may undergo some changes.
In its latest note on Monday, BTI said the now, “total project capital cost is likely to rise by about 4% as against 10-12% envisaged earlier”.
“Revised rate structure will not have any material negative impact on the industry and will allow project developers to proceed with construction,” said BTI, but added that the union ministry of new and renewable energy (MNRE) needs to still play a hands-on advisory role for all affected entities to ensure smooth transition for the industry.
BTI stressed that some developers may still file compensation claims but many of them might simply absorb the additional burden to avoid scrutiny of sensitive commercial information.
“5% GST rate for solar modules sounds reasonable and consistent with government guidance leading up to the rates announcement,” it added.
The consulting firm explained that the new tax regime will result in effective rate of indirect taxes to go up from zero to 5% on solar modules and around 3% on engineering and construction services.
“Impact on inverters is still not clear,” it added.
India has an ambitious solar power target of 100 GW by 2022. At present, India has 12.28 GW of grid connected solar power installed.