GST & Climate Change: Renewable Energy Prices to Rise by Upto 16%

A tax change that should be good for the economy may not be good news for the renewable energy sector.

A solar panel is cleaned using a wet sponge. (Photo: iStockphoto)

At first glance, the Goods and Services Tax (GST), passed by the Rajya Sabha on Wednesday, would be beneficial to India’s economy. The bill would bring together central and state levies to turn India into a “one tax” country. But the renewable energy industry could take a hit, experts say.

Also Read: Everything You Need to Know About the GST Amendment Bill

A wind farm in Maharashtra. (Photo: iStock)

In the last couple of years, the renewable energy industry has boomed. Part of this success has been spurred by tax breaks and other incentives provided by the government.

Between 2009 and 2015, solar prices dropped by 75 percent according to the Delhi government. Changes like these brought in a flood of investments.

But under the GST bill, the tax exemptions that fuelled renewable energy development would be done away with. Solar panels that were imported without taxes will now be taxed, said Jasmeet Khurana, associate director of Bridge to India, a consulting firm that analyses renewable energy policy.

Log Gates in Neyyar Dam. (Photo: iStock)

Taxes on photovoltaic solar cells would rise between 12 to 16 percent, while taxes on wind and biomass would rise between 11 and 15 percent, a report from the Ministry of New and Renewable Energy found.

The ministry and an advising committee led by chief economic adviser Arvind Subramanian are expected to urge the government to make renewable energy exempt from GST, or reduce taxes on renewable energy products.

If the recommendations of Arvind Subramanian panel are accepted and there are three different slabs for GST rate, we are hopeful that key renewable equipment such as solar cells and modules can find a place in the lower rate band (around 12 percent instead of 18-21percent).

Jasmeet Khurana, Bridge to India

Ultimately the GST shouldn’t take a toll on government efforts to reduce climate change-inducing greenhouse gases through clean energy, Khurana added. Renewable equipment prices continue to drop, so GST shouldn’t have a lasting impact.