Solar tariffs are expected to see a rise of 10 percent once the Goods and Services Tax (GST) is rolled out, according to a study by the Council on Energy, Environment and Water (CEEW). The Council also found that the GST will give a boost to the government’s “Make in India” initiative, improving competitiveness of Indian manufacturers of solar cells, panels and modules, eliminate the cascading effect of the existing tax structure and introduce an input tax credit. Increased competitiveness of domestic solar manufacturers could create an additional 37,000 new jobs in the solar manufacturing sector by 2022, according to the report.
After the rollout of GST, the current tax exemptions, subsidies, and holidays will end. Key contributors to the increase in solar tariffs after GST would include an increase in operations and maintenance cost, panel costs, and financing costs. The increase in solar tariffs would also vary across states. They would be higher for states such as Rajasthan where Value Added Tax (VAT) and Entry Tax exemptions are currently provided for solar equipment as opposed to Andhra Pradesh and Gujarat where VAT and Entry Tax exemptions are not provided. Solar deployment hurdles need to be ironed out as early as possible in order for the country to reach its anticipated solar capacity levels of 12 GW by 2018. While the GST offers long-term benefits, the short-term negative impacts need to be addressed quickly by the governing bodies. “If current tax exemptions are curtailed, the impact of the increase in solar tariffs could be partially offset by policy instruments, such as Accelerated Depreciation benefits or Viability Gap Funding for projects incurring increased capital investments,” said Dr. Arunabha Ghosh, CEO, CEEW.