GST- How will the renewable sector deal with it?

India has been increasingly focusing on renewable energy, which has garnered considerable global interest; however, according to latest findings, there is a high probability that the new GST (Goods and Services Tax Bill) regime will raise the cost of setting up renewable energy projects in the country by up to 20%. It has been learnt that the Ministry of New & Renewable Energy (MNRE) will share the findings of the report with the Department of Revenue, requesting an exemption. The study commissioned by the ministry compiles findings that lead to the revelation that the implementation of the GST will increase the cost of setting up of all categories of renewable energy systems, be it solar, wind, or biomass, or even small hydro power projects.

The draft findings, which have been reviewed by Economic Times, serve to show that the cost of Solar PV-Grid could rise by 12-16% and that of Off-Grid systems by 16-20%. Wind energy systems could face an increase of 11-15% in tariff/cost of setting up and operations, and given that it is already going through a dull phase, this drastic increase will not bode well for it at all. Besides, the hybrid and solar combination projects will, in all likelihood, face an increase of 11-17%. The major factors that will lead to an adverse impact on the cost of renewable energy include removal of exemption, increase in tax rates, and removal of statutory norms. The ministry has put forward its argument that a sudden increase in cost would result in policy disruption, scare away new investors, and also make it difficult to retain existing investors.

100% tax holiday on the earnings for 10 years, concessional excise and custom duties, are some of the various fiscal incentives that the renewable energy sector currently enjoys. However, in the new GST regime, all these incentives will come to an end. With over $4 billion lined up for investments in India’s solar industry, its viability depends largely on exemptions continuing on related equipment to power 4.8 GW of electricity generation. Service tax is also likely to increase to 18%, thus leading to a 5% rise in operation and maintenance charges. Developers are keeping their fingers crossed, with the hope that a standard GST rate will not be taken into consideration for projects that have bid at high tariffs. Indian renewable energy development has to be given a big boost in order to meet the targets of the Government by the end of the decade.