Solar developers worried about 7% GST hike on solar parts

Project developers are worried about the Goods and Service Tax Council’s proposal to hike GST on solar components from 5% to 12%.

According to the GST Council’s proposals, the GST rate on solar modules was set at 5% in 2018.

As per the developers, last week’s proposal for the raise by the GST Council could make solar projects unviable.

The GST council has said that for specified renewable energy components, the GST would be 12% instead of the previous 5%, with effect from 1st October 2021.

Under the current regime, 70% of the gross value of the agreement was considered for the supply of goods, attracting a 5% rate, which will be 12%.

It is in the case of a contract of supply for solar power producing systems. The remaining 30% is for the supply of taxable services, drawing a GST rate of 18%.

Commenting on the recommendation to increase the GST, Managing Partner, Artha Energy Resources, Animesh Damani, said that the new proposal by the GST council, raising the recommended tax to 12% for renewable energy projects, will produce a fresh set of challenges for the sector to address. Compared to the previous 5%, this is a notable rise and will affect ongoing and forthcoming projects. Utility-scale, open access, and OPEX projects will be the most impacted.

He said that these power purchase agreement tariffs of the project would have to be surged to provide the new tax structure. Because of the inverted duty structure, wherein there is no GST imposed on the sale of power, the GST paid for the renewables project would become a cost.

Under the previous tax structure, the GST component of the project cost was 8.9%, which has surged to 13.8% now. An overall cost rise of 4.9% is bound to impact consumer sentiments negatively. There will be extended tariff change applications by all developers under the change in law mechanism. Discoms, which have been against any cost rise in solar tariffs, may find the new tariffs unattractive. More than one GW of projects across the rooftop and open access sections would be negatively impacted.

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