GST poses a big risk for the Indian solar industry

Recent reports suggest that the changing numbers in Indias upper house of Parliament may
mean that the Goods and Services Tax (GST) Bill could be passed by July 2016. Indias finance
minister also claimed yesterday that he is hopeful for the bill passage by mid-May. If the bill is
indeed passed as anticipated, it is expected to be implemented almost immediately.
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. Renewable sector, currently
a beneficiary of several indirect tax exemptions, may be a big loser as a result of GST since the
bill proposes to revoke most of the exemptions.
Key highlights:

The resulting input cost/ tariff increase of between 12-20% would wipe out the pricing gains
of the past two years
The 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 on-going projects in
jeopardy.
The cost increase would arise because of two reasons: i) currently, no import duty or indirect tax is
applicable on solar modules but under the new regime, GST of between 17-20% would be
payable; ii) local value added tax (VAT) and other levies such as excise, entry tax and Octroi on
solar modules and the complete system, together at around 5% in most states because of many
exemptions, would again be replaced by a combined GST of 17-20%. The MNRE report estimates
that the cost for all equipment used in a solar project i.e., solar modules, inverters, cables,
batteries, structures etc. will go up adding up to a differential of 12-20% from current levels.
Successful passage of the GST bill, although highly beneficial to the wider economy, would
severely impact both on-going and new projects in the sector. MNRE is believed to be pushing for
a waiver from GST arguing that a sudden increase in cost would lead to disruption in the sector
and delay implementation of policy targets. BRIDGE TO INDIA is of the opinion that the solar
sector has a strong case for an exemption. The government has put strong focus on the sector to
achieve a very diversified set of policy goals including energy access, energy security and climate
change mitigation. Moreover, as the sector is still relatively small, an exemption would not lead to
significant loss of revenue in the short-term.