Impact of GST on the Indian solar industry
The government’s decision to levy 5 per cent GST on solar panels as against the earlier classification of 18 per cent comes as a major reprieve to the industry Introduction:
- Ambiguity surrounding the Goods and Services Tax rate on various inputs is troubling the solar sector, with industry players also saying that their suppliers are not passing on the benefits arising out of input tax credits, leading to higher prices and higher tariffs for customers.
- GST has multiple ramifications not only for the Indian solar sector, but for the economy as a whole.
India’s solar sector:
- To talk about the Indian solar sector, it can be regarded as the future of India’s energy roadmap.
- India faces the crucial energy dilemma considering that approximately 18,000 villages do not have access to energy, but, at the same time, the country has a strong commitment to reduce its carbon footprint.
- It is here that solar energy comes to the rescue.
- It is eco-friendly and hence can play an instrumental role in reducing country’s carbon footprint.
- The solar energy has the potential to bridge the crucial energy gap especially in remote areas where access to conventional energy is difficult. From the consumer’s viewpoint, switching to solar energy will lead to reduction in burgeoning power bills.
- Taking into account the benefits of solar energy the government has always accorded a slow of incentives to this sector.
- The Government’s decision to levy 5 per cent GST on solar panels and solar PV cells as against the effective rate of taxation at 0% in the previous regime will, no doubt, lead to marginal increase in project costs.
- The 5% tax rate specified by the GST Council for solar components has increased the cost of the projects, the ambiguity over the other inputs-which are used of projects other than in the solar sector- in creating confusion among solar developers.
- There is also a little confusion on solar right now because the detailed gazette talks about structures, invertors, wires, and other components without specifying whether they are for solar or not.
- There is confusion about whether an inverter, if it is being used for solar, comes under 5% or the normal rate of 28%.
Impact of GST on Indian solar industry:
- The decision is expected to boost inter-state trade directly with customers.
- Besides removing the cascading effect of taxes, GST will improve cash flows due to change in rates of taxation.
- Another positive impact of GST is availability of input credit against supply of solar goods which will improve cash flow and EBITDA.
- Reduction in multiple tax compliances – state as well as central — can be co-related with corresponding reduction in administrative costs.
- It will also lead to reduction in warehouse costs. For the economy as a whole, GST will lead to abolition of trade barriers across state and which would enable the growth of common market.
- On July 1, 2017, India embraced the Goods and Services Tax(GST) legislation. Touted as one of the major financial reform since Independence, the legislation had initially created apprehension in minds of taxpayers and entrepreneurs alike.
- GST will subsume the whole gamut of indirect taxes such as VAT, Service Tax, central excise tax, octroi into one unified tax.
Conclusion: So, it would be prudent to state that implementation of GST will not dampen the solar sector if one were to take into account the broader picture. A lower GST rate would have surely been a boon but it would not make a significant dent on the solar sector in the long run. Irrespective of new legislations coming into picture, solar energy will continue to be among the crucial mix of India’s energy roadmap taking into account the country’s ambitious target of solar power of 100 GW by 2022