GST blow for solar power to soften

Revenue secretary Adhia says solar panels to attract 5% rate, not 18%

After fixing rates under the goods and services tax (GST), the government is now learnt to be working full time on settling the anomalies in the new regime. In one such surprise clarification,  the Union government has addressed the concerns of the solar power sector.         

Revenue Secretary Hasmukh Adhia told Business Standard that the GST rate on solar panels or modules will be 5 per cent as against 18 per cent declared earlier. 

The official clarification on this is expected at the GST Council meeting, to be chaired by Union Finance Minister Arun Jaitley, on June 3. 

Coal has been put under the 5 per cent GST bracket as against a current incidence of 11.69 per cent, while solar panels that are currently tax exempt are shown under the 18 per cent slab. 

This was viewed as detrimental for the future of clean energy sector in the country.

However, spare parts for solar sector are part of the 5 per cent tax slab, seen as an anomaly for the sector. When asked about it, Adhia said, “solar panels will also be taxed at 5 per cent under GST.”

The Council, in the upcoming meeting on Saturday, is also expected to rectify anomaly in the GST rates for certain other items such as printers and hybrid cars. 

Printers are mentioned under both 18 per cent and 28 per cent tax slab, thereby resulting in confusion in the industry. 

Before GST, there was no tax levied on solar power but with 5 per cent tax, the tariffs could go up by 15-20 paise. Solar power tariffs recently made history by going as low as Rs 2.44/unit in a bidding held in Rajasthan.

After the announcement of GST rates, power, coal, renewable energy and mines minister Piyush Goyal had welcomed the Council decision saying that a 5 per cent GST rate for coal will help bring down costs while the 18 per cent rate for solar modules will not adversely impact the solar power tariffs.

‘’The prices of solar and wind energy have hit record low and the industry is now able to stand on its own feet without any support, " Goyal had said. 

Pratik Jain, leader, indirect tax , PwC India said, it seems that the intention is to have a 5% rate on goods supplied to solar industry including modules and panel, as currently most of these items are completely exempt from tax.  "However, for goods which can be used by solar as well as other industries, there should be a mechanism to determine the actual usage so that the industry gets the intended benefit," Jain said. 

The move will be a respite for project developers, but most of them still want to read the fine print before placing their bets.

"It's commendable for the government to issue a clarity in just 10 days. But to avoid any confusion, we would request them to issue a formal notification and address concerns on the differential slab for equipment and final product," said Lalit Jain, Chief Commercial Officer at Moser Baer Clean Energy Ltd.

Sector experts said that the impact on the tariff and project cost would still be there. But as the tax rates are pass through, solar might become slightly expensive for consumers.

"In the GST fine print, the tax on equipment for solar power modules is 18% and on cables, batteries and transformers is 28%. The 5% final tax that the government is now clarifying is because of the reimbursement and input tax credit or is it the final tax rate - that needs to be made clear," said a senior executive of a Delhi-based renewable energy company.

As for other anomalies such as in printers and related accessories, experts say this will leave the window open for tax officer to create disputes in future on taxability of such products. The current tax incidence on such products is between 16% and 18%, hence it must be put in the 18% tax slab. 

"It is expected that the government during the legal vetting of the rate schedule will look at all such discrepancies and address the industry’s concerns on such issues which are the foundation of businesses before introduction of GST,’’ said Jain of PwC. 

Automakers too have pitched for a lower rate for hybrid cars, at the current incidence level of 30.3%, as against 43% (28% plus 15% cess) decided by the Council. They have argued that it will adversely impact the future of alternate energy. Road minister Nitin Gadkari has also said that he will take up the case of GST rates for hybrid cars with the finance minister.