New Delhi: The solar sector could see tariffs rise by around 10 per cent if current tax exemptions are curtailed in the roll out of GST, a Council on Energy, Environment and Water (CEEW) study has said.
Multiple GST (Goods and Services Tax) rates and their uncertain applicability to different equipment and services for solar projects are a growing concern for solar project developers and investors. GST could also impact the pace of the second phase of solar park development for additional 20,000 MW capacity announced in the recent Budget, it said in a statement.
According to the statement, the key contributors to the increase in solar tariffs as a result of GST would include increase in operations and maintenance cost, panel cost, and financing cost.
The increase in solar tariffs would also vary from state to state; higher for those such as Rajasthan where VAT and Entry Tax exemptions are currently provided for solar equipment, as opposed to Andhra Pradesh and Gujarat where VAT and Entry Tax exemptions are not provided, it said.
The CEEW study also finds that GST will give a boost to the governments Make in India initiative, improving competitiveness of Indian manufacturers of solar cells, panels and modules; eliminate the cascading effect of the existing tax structure and introduce an input tax credit.
Increased competitiveness of domestic solar manufacturers could create an additional 37.000 new jobs in the solar manufacturing sector by 2022, it said. Even as India celebrates record low solar tariffs, the CEEW study finds that GST could possibly push up capital cost of a solar project by Rs 45 lakh per megawatt if current tax exemptions were curtailed, setting back the sector in terms of cost competitiveness by about 18 months, it said.
Solar project developers have approached the government with requests to ensure that the current tax exemptions applicable to the sector continue so as to not negatively impact the efforts to achieve grid parity.
The government currently collects less than 0.1 per cent of its total indirect tax from the solar sector, it added Dr Arunabha Ghosh, CEO, CEEW, said, If current tax exemptions are curtailed, the impact of the increase in solar tariffs could be partially offset by policy instruments, such as Accelerated Depreciation benefits or Viability Gap Funding for projects incurring increased capital investments.
The recent Budget has already benefited domestic solar manufacturers with the reduction of basic customs duty to nil for tempered glass used in the manufacture of solar cells, panels and modules and the reduction of countervailing duty from 12.5 per cent to 6 per cent for parts used in the manufacture of tempered glass which is used in solar PV cells, modules, etc, it said. Finance Minister Arun Jaitley announced last month that the GST may be implemented on July 1, 2017, it added.