India has passed a ground-breaking tax bill that seeks to bring the country under one uniform tax regime, but which is likely to increase costs for solar developers.
The Goods and Service Tax (GST), first proposed 30 years ago, was unanimously voted in by the Upper House of the Parliament of India (Rajya Sabha) yesterday after a seven hour debate, although it will not be enforced until 1 April 2017 at the earliest.
The aim of the GST is to have one indirect tax on sale and consumption of goods and services in India to prevent inefficiencies in the Central and individual state taxes, which has caused problems such as tax-on-tax. Finance minister Arun Jaitley told parliament that the GST will improve ease of doing business in India with tax rates likely to come down.
Prime Minister Narendra Modi also hailed the passing of the Bill:
Our MPs must be congratulated for their path breaking decision to give India an indirect tax system for the 21st century. #TransformingIndia
— Narendra Modi (@narendramodi) August 3, 2016
However, Jai Sharda, managing partner, Equitorials, a financial research firm based in India, told PV Tech: “While for most sectors, GST implementation is going to be positive, India's energy and more importantly, renewable energy sector is going to be adversely impacted by it, at least in its current form.
“Currently capital goods and services used in electricity generation value chain get various tax exemptions. These exemptions will now get eliminated under GST. Accordingly, GST would increase the capital and O&M expenses for the renewable energy players.”
For example, as things stand, there is no tax or duty applicable on import of solar cells or modules as against an import duty of 26-29% for most other goods. Under GST this nil rate would be replaced by a combination of basic custom duty and the applicable GST rate, as explained in a blog by Bridge to India associate director of consulting Jasmeet Khurana.
This is just one of a number of tax incentives for solar likely to be removed by the GST, such as 100% tax holiday on earnings for 10 years and concessional excise and custom duties.
Khurana told PV tech that it is still not known what rate the GST tax will be set at and this will be determined by a GST Council.
He added: “It will be several months before we actually know what the real impact is going to be and obviously the implementation – even though the government is hoping will happen on 1 April 2017 – in all probability, that will get stretched by a couple of quarters.”
The Ministry of New and Renewable Energy (MNRE) had asked the Finance Ministry to exempt solar imports from the GST after forecasting that GST would increase the levelised tariff for grid-connected solar PV by 12-16% and off-grid solar by 16-20%. However, mines and energy minister Piyush Goyal later said he did not want this exemption.
Tarun Kapoor, MNRE joint secretary, told PV Tech that solar developers will have to account for any extra costs when bidding for projects, but it is still unclear exactly how the industry will be affected.
The reaches of the Bill are enormous and set to affect almost all business across India, let alone the solar sector.
Arun Jaitley was optimistic about its wider impacts:
— Arun Jaitley (@arunjaitley) August 3, 2016