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Published:August 30, 2017 4:32 PM
The Goods & Services Tax (GST) has rolled out in the country on 1st July, 2017. The rate of tax also varies in between four tax slabs – 5%, 12%, 18% and 28%. To maintain the attraction of investments and encourage more installations, the government carefully placed the solar and wind sectors in the 5% tax bracket. Most of the renewable products and equipment including wind mill, waste to energy plants, tidal energy plants and bio-gas plants and even solar power based devices or generating systems have been classified under the 5% rate bracket.This is intended to meet India’s Paris Climate Agreement goals. While some businesses have adopted GST easily, others are still in ambiguity. The Indian Solar Market is one of the affected by enforcement of GST.Lack of clarity on the 5 per cent goods and services tax (GST) levy on solar equipment, although Union Power Minister Piyush Goyal has reiterated that there is no ambiguity as the government is very clear on the issue. According to a tweet by the Revenue Secretary, Dr Hasmukh Adhia, all solar equipment and its parts would attract 5% GST only. Challenges under the previous tax regime: • Multiplicity of taxes and various trigger points for levy leading to a complex tax structure • Cascading effect i.e. tax on tax paid on goods. VAT / CST is paid on a value inclusive of excise duty • No smooth flow of credit-Excise duty paid on inputs cannot be set off against VAT or service tax and vice versa • Different rates of State taxes-Octroi/Entry tax additional burden • Double taxation of works contract Post GST Scenario of Solar Energy Market: • Supply part is kept at different rates from service: Supply (Procurement of Goods) is @ 5% and Services (Engineering & Consultancy) is @ 18% • Solar panels have been placed under 5% GST slab while earlier it was exempted. • Solar equipment such as inverters have come under 5% tax slab. • Solar projects involving civil and works contract will be taxed at 18%. India recently achieved 13.1 GW (June, 2017) of installed grid-connected Solar capacity, helped by lower module and borrowing prices. A tax on solar parts could hurt the young and booming industry, which relies heavily on cells imported from China. Solar tariffs in India had fallen to a record low of 2.44 rupees ($0.0378) per unit in May,2017. Expected Impact on Ground-mounted Solar Projects: Particulars Correct Indirect tax implications GST Impacts Purchase of Goods- Imports · BCD: 5% · CVD: Exempt/6% · Customs Cess: 6% of the BCD · SAD: Exempt · BCD: 5% · Customs Cess: 3% · IGST: 5% Marginal Increase or Neutral(neutral due to elimination of cascading) Purchase of goods- Indigenous · Excise Duty: Exempt/6% · CST: 2%(against form C) · VAT: Nil/5 to 5.5% · GST: 5% Marginal Increase or Neutral(neutral due to elimination of cascading) Purchase of Services · Service Tax:15 % · GST: 18% Marginal Increase Overall Impact Overall tax cost on setting up has marginally increased under GST due to discontinued exemptions Key Concerns after GST: • High rate of GST at 18 per cent on output, when treated as works contract though solar projects involve predominantly goods charged GST at 5 per cent • Higher tax cost under GST is not creditable by project owners since electricity is kept out of GST. Hence, the entire GST would become a cost. What the developers need to do: • Developer needs to do proper due diligence of their projects • Should go through the Central Board of Excise & Customs(CBEC) corrigendum regularly • For new bids separate contracts should be awarded for - o Supply o Engineering & Consultancy Conclusion: • Solar tariff is expected to increase marginally • Commissioning date of pipeline projects may get affected • PPA-renegotiation may be required for existing projects • Developers may have to further cut their profits to cope up with aggressive biddings Way forward: • Tax planning –Split contracts for procuring goods and services separately to mitigate GST impact • Re-Negotiation of contracts / invocation of change in law clause to pass on the higher GST cost • Review of vendor contract to incorporate clauses to indemnify the recipient in case of non-payment of tax by the supplier • Contractors / Project owners to analyze tax liability for all ongoing projects in line with transition provision • Amendment to the existing contract clauses to include any interest, penalty on late payment or under contract, payable along with applicable GST InfralineEnergy Disclaimer: The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of the InfralineEnergy (Technologies India Pvt. Ltd.). The organization is not liable for any use that may be made of the information contained therein and any direct/indirect consequences resulting therefrom.
The Goods & Services Tax (GST) has rolled out in the country on 1st July, 2017. The rate of tax also varies in between four tax slabs – 5%, 12%, 18% and 28%. To maintain the attraction of investments and encourage more installations, the government carefully placed the solar and wind sectors in the 5% tax bracket. Most of the renewable products and equipment including wind mill, waste to energy plants, tidal energy plants and bio-gas plants and even solar power based devices or generating systems have been classified under the 5% rate bracket.This is intended to meet India’s Paris Climate Agreement goals.
While some businesses have adopted GST easily, others are still in ambiguity. The Indian Solar Market is one of the affected by enforcement of GST.Lack of clarity on the 5 per cent goods and services tax (GST) levy on solar equipment, although Union Power Minister Piyush Goyal has reiterated that there is no ambiguity as the government is very clear on the issue.
According to a tweet by the Revenue Secretary, Dr Hasmukh Adhia, all solar equipment and its parts would attract 5% GST only.
Challenges under the previous tax regime:
• Multiplicity of taxes and various trigger points for levy leading to a complex tax structure
• Cascading effect i.e. tax on tax paid on goods. VAT / CST is paid on a value inclusive of excise duty
• No smooth flow of credit-Excise duty paid on inputs cannot be set off against VAT or service tax and vice versa
• Different rates of State taxes-Octroi/Entry tax additional burden
• Double taxation of works contract
Post GST Scenario of Solar Energy Market:
• Supply part is kept at different rates from service:
Supply (Procurement of Goods) is @ 5% and Services (Engineering & Consultancy) is @ 18%
• Solar panels have been placed under 5% GST slab while earlier it was exempted.
• Solar equipment such as inverters have come under 5% tax slab.
• Solar projects involving civil and works contract will be taxed at 18%.
India recently achieved 13.1 GW (June, 2017) of installed grid-connected Solar capacity, helped by lower module and borrowing prices. A tax on solar parts could hurt the young and booming industry, which relies heavily on cells imported from China. Solar tariffs in India had fallen to a record low of 2.44 rupees ($0.0378) per unit in May,2017.
Expected Impact on Ground-mounted Solar Projects:
Particulars
Correct Indirect tax implications
GST
Impacts
Purchase of Goods- Imports
· BCD: 5%
· CVD: Exempt/6%
· Customs Cess: 6% of the BCD
· SAD: Exempt
· Customs Cess: 3%
· IGST: 5%
Marginal Increase or Neutral(neutral due to elimination of cascading)
Purchase of goods-
Indigenous
· Excise Duty: Exempt/6%
· CST: 2%(against form C)
· VAT: Nil/5 to 5.5%
· GST: 5%
Purchase of Services
· Service Tax:15 %
· GST: 18%
Marginal Increase
Overall Impact
Overall tax cost on setting up has marginally increased under GST due to discontinued exemptions
Key Concerns after GST:
• High rate of GST at 18 per cent on output, when treated as works contract though solar projects involve predominantly goods charged GST at 5 per cent
• Higher tax cost under GST is not creditable by project owners since electricity is kept out of GST. Hence, the entire GST would become a cost.
What the developers need to do:
• Developer needs to do proper due diligence of their projects
• Should go through the Central Board of Excise & Customs(CBEC) corrigendum regularly
• For new bids separate contracts should be awarded for -
o Supply
o Engineering & Consultancy
Conclusion:
• Solar tariff is expected to increase marginally
• Commissioning date of pipeline projects may get affected
• PPA-renegotiation may be required for existing projects
• Developers may have to further cut their profits to cope up with aggressive biddings
Way forward:
• Tax planning –Split contracts for procuring goods and services separately to mitigate GST impact
• Re-Negotiation of contracts / invocation of change in law clause to pass on the higher GST cost
• Review of vendor contract to incorporate clauses to indemnify the recipient in case of non-payment of tax by the supplier
• Contractors / Project owners to analyze tax liability for all ongoing projects in line with transition provision
• Amendment to the existing contract clauses to include any interest, penalty on late payment or under contract, payable along with applicable GST
InfralineEnergy Disclaimer:
The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of the InfralineEnergy (Technologies India Pvt. Ltd.). The organization is not liable for any use that may be made of the information contained therein and any direct/indirect consequences resulting therefrom.
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