India’s Move to Cut Corporate Tax from 30% to 22% Likely to Boost Domestic Solar Companies

The finance ministry of India has passed an ordinance bill to give the Indian economy a fiscal stimulus of $20.4 billion by way of reducing corporate tax rates from 30% to 22% for domestic companies.

The Indian government, which seemed hesitant to launch any fiscal measures to boost the slowing economy has finally succumbed to the pressure and announced these reforms which are being hailed as a game-changer for companies in India.

The move is expected to impact corporate India positively, as it will increase the after tax profits of these companies. Mercom reached out to industry experts in the renewable energy sector in order to find out what their views were on the announcement of these tax cuts.

Nikunj Ghodawat, chief financial officer at CleanMax Solar said, “The Finance Minister’s announcement today slashing the corporate tax from 30% to 22% will have a significant positive impact across all industries and uplift the business confidence and revival of the CAPEX cycle. This change is perfectly in line with our demand from earlier this year requesting for the corporate tax to be at par with other South Asian countries. This will have a multiplier impact as each industry will have the possibility to pass on the tax benefit to the end user, thus relaying the impact across the economy up to the last mile consumer. In view of the current downturn, we are confident that such policy moves are in the right direction to boost speedy execution of projects and enable government to achieve its ambitious infrastructure growth target, including renewable energy which is one of the key focus areas of the government.”

The finance ministry also announced additional tax cuts for new companies that will set up manufacturing in India before 2023. This is expected to increase investment in the manufacturing sector. However, according to solar companies Mercom interacted with, tax rate was not a criterion on the top of the list of considerations for solar equipment manufacturers. Availability of land, power, infrastructure and stable government policy were more significant concerns for these companies.

Sunil Rathi, Director – sales and marketing, Waaree Energies, “While at the outset, the reduction in corporate tax is seemingly a boon for India Inc, and a bold move by the Indian government, the anticipated positives for the solar manufacturing industry seem limited. Due to the cut-throat competition from the international solar manufacturing players and lack of concrete policies such as anti-dumping, the domestic manufacturers are dependent on fiscal incentives from the government which outweigh the proposed benefit of the reduced corporate taxes; thus making the former the ideal choice. However, this move will provide an impetus to start-up India and infuse innovation and R&D in the solar sector through disruptive young players. This in turn, is likely to bridge the demand-supply gap in the country which will act as a multiplier to the current manufacturing capacity in India.”

The bold and surprising move seems to be a long-haul reform which may take four to five years to materialize in terms of actual large-scale solar manufacturing capacity development.

In March 2019, India’s annual budget introduced many incentives for the domestic EV sector as well as renewable developers.