Day Four GST: Clarity Missing For Solar Industry

With goods and services tax (GST) being launched on July 1, 2017, the solar industry in the country is hovering over the clarity of the new tax regime. There remains a lot of uncertainty especially over the concessional rate of 5 per cent.

According to Consultancy Bridge to India, GST will be applied to solar modules at a concessional rate of 5 per cent, which has been confirmed by the minister and the authorities. Though there is a confirmed stance that this 5 per cent rate will be extended to all the equipment for solar generating plants apart from the modules, the operational clarity for these other goods mentioned is missing.

“There is confusion in the market on how to avail of the concessional 5 per cent GST rate when many of the same components are taxed at higher rates for use in other industries”, says the report, mentioning that the ministry is working to evolve a mechanism to resolve this issue, in consultation with the finance ministry.

The rate confusion comes with non-clarity on availing the concessional rate of 5 per cent under GST. Several inverter suppliers have spoken about different rates of inverters under the new law, varying from 5 per cent to 18 per cent and remain unclear on the same.

Similarly, the report explains how the transformers used for solar projects are intended to be taxed at 5 per cent but they are taxed at 18 per cent for other applications. In the absence of any specific notification for solar projects, GST rate varies from 18 per cent for capital goods such as inverters and module mounting structures to 28 per cent for cables and batteries.

“Almost 10 gigawatts (GW) of India’s pipeline solar capacity is impacted by increase in indirect tax rates under GST and lack of clarity adds to the complexity. If all capital goods for solar projects are taxed at 5 per cent rate, we expect overall increase in engineering procurement construction (EPC) cost at around 3 per cent. If, however, only modules are taxed at 5 per cent and other capital goods are taxed at rates between 18-28 per cent, the net increase in EPC cost is expected to be around 6 per cent,” adds the report.

The consultancy also expects project delays and risk of litigation between the project developers and DISCOMs over sharing of the additional cost burden. Similarly, solar rooftop market might have to face adverse impact, with anticipation of market slowdown.

Naina Sood

BW Reporters Naina Sood is a Economics graduate and has done her post graduation in International economics and Trade. She has deep interests in Indian economy and reforms