GST Tax Burden Could Lead To a Hiatus in Indian Solar Growth

Indian solar growth is a trajectory impressive enough to compete with dominant solar players. Lack of an industrial backing could not stop India from introducing renewable energy installations within the country. Current solar power capacity standing at 12 GW, and 14 GW capacity projects under construction and 6 GW to be auctioned assured a quick solar growth within the country.

Besides the on-grid solar development, policies and schemes offering custom duty concession, tax holidays, excise duty exemption, and accelerated depreciation, for commercial and industrial sectors, have also led rooftop solar installations to rise from 72 MW per year to 227 MW per year. It is astounding that Indian rooftop solar has surpassed 1 GW capacity, and promising at least 75 per cent growth in 2017 over 2016.

All these show tangible progress, building up the future that will substantiate ‘power for all’ vision of Indian Government leaders. However, we are still nowhere near the countries (China, US) that already dominate huge parts of the solar product supply chain. And it is important to contend with these countries to claim a larger part of the industry, bringing profit to initiate socio-economic reform in the country.

Domestic manufacturing can help India build solar reliance. However, as India does not have systematically enhanced (fashioned through decades) industrial support that countries like China, US, Canada are backed by, Indian solar sector needs financial and policy support from the government to mass produce solar components, controlling the price of the products. For example, Chinese modules are still 8-10 per cent cheaper than domestically manufactured modules (Chinese modules cost $0.33-$0.36 cents/per Watt p, while domestic modules cost $0.35-$0.40 cents/per Watt p). This has created an unfair competition within the Indian solar industry.

Although, Indian solar sector has seen support in guise of Government backing, concessions, and waivers on sales tax, excise duty, basic custom duty, total custom duty have encouraged and allowed domestic manufacturers to go toe-toe with the foreign players, protecting Indian dream of solar reliance ( because, without domestic manufacturers our energy growth and security would be at the mercy of foreign suppliers).

Let us look at the privileges Indian solar sector enjoyed:

Excise Duty: The Excise Duty on Manufacture of Solar Modules (HS Code 854140) is Nil vide exemption notification no. 12/2012 dated March 17, 2012

Sales Tax: The Sales Tax in the form of VAT/CST has been Zero Rated/NIL/Exempted in most of the states namely Rajasthan, Madhya Pradesh, Uttar Pradesh, West Bengal, Karnataka, Tamil Nadu, Chhattisgarh etc.

Basic Custom Duty: The Basic Custom Duty on import of Solar Modules (HS Code 854140) is Nil vide exemption notification no. 24/2005 dated March 1, 2015

Total Custom Duty: The custom duty on import of Solar Modules is Nil, since Basic Custom Duty is Nil and CVD (in lieu of Excise Duty) is Nil so, SAD (in lieu of VAT) is Nil.

However, we fear that with 5 per cent added tax on solar modules, brought on by GST rates, the competition will intensify even more than it is currently now, cutting down the profit ratio considerably, forcing domestic manufacturers to sell modules at a loss. GST tax on modules will also increase overall project cost considerably, which will essentially make projects financially unviable (due to continuously falling solar tariffs), breeding confusion on ROI, thus scaring off investors.

Indian solar industry will eventually become a subsidy free sector, satisfying the energy demand and bringing profit in the country for socio-economic development. However, reaching such a position will take time. Currently India is at a nascent stage and needs support from Government for growth we have envisioned. Burdening this sector with taxes would not be the right path towards success. Waiving off taxes on modules on the other hand can help the sector grow and build solar capacities within the country to claim a piece of the global energy market.