GST hike from 5% per 12% to make solar projects unviable, say industry players

The GST fitment committee's recommendation to raise the tax on solar modules from 5% to 12% has sent shockwaves across the renewable energy industry, as companies are worried that it would make a lot of projects unviable.
Currently, the GST rate on all solar panels is 5%. This was decided when the indirect tax system was overhauled in 2017.

"A straight 12% GST for the solar industry will prove to be a catastrophic decision for a huge segment in the renewable energy industry," said a top executive from a leading solar power developer.

"Not only will it throw yet another spanner in the works of upcoming projects, EPC (engineering, procurement, construction) firms will bear the worst brunt of this decision," the person added.

The National Solar Energy Federation of India, an industry body that represents the interests of renewable energy developers, has written to the Ministry of Finance seeking relief. "At this juncture, if they are asked to pay for the additional GST, the repercussions would be unimaginable, and the industry could derail given the negative market sentiments continuing to prevail amid the turmoil this industry is already facing," the federation said in its letter.

While existing large-scale utility projects that have been bid out by the Centre's nodal bodies are likely to get an exemption because of a change-in-law provision, private projects for open access and commercial and industrial consumers would have to pay the hiked tax rate.

The GST Council will meet on Friday to decide on the matter. Other items up for discussion are oncology medicines, rubber products and household electronics.

Solar imports enjoy an import duty-free period till April 2022. After that, a basic customs duty of 40% on solar modules and 25% on solar cells will be charged on imports.

"Maybe this is the government's way of plugging in the gap on the tax holiday that the developers are taking advantage of till next year. But such a massive increase in taxes will negatively affect the domestic players as well," said an executive from an Indian manufacturer, requesting anonymity.