The Ministry of Power has recommended that renewable energy be given a zero-rate tax status under the Goods and Services Tax, predicting several adverse effects to the economy if there is any increase in power tariffs due to the new tax regime.
“Any further tariff increase due to GST may have a multiplier effect on economic development (such) as: (i) difficulty in passing through the impact to agriculture and domestic consumers, (ii) adverse impact on industrial production and GDP, (iii) adverse impact on Make in India, and (iv) adverse impact on export competitiveness of Indian products and services,” according to a presentation made by it to the GST Council during the ninth meeting of the GST Council on January 16.
In the presentation, a copy of which is in the possession of The Hindu , the Ministry took a benchmark GST rate of 18% and calculated that, if renewable energy is taxed at this rate, then capital expenditure in the sector would increase between 10% and 12% and tariffs for wind and solar energy could increase by as much as ₹0.5 per unit.
The Power Ministry’s recommendation was for the GST Council to choose one of two options: either give renewable energy supply a zero-rate status, or give it a deemed export status.
The Ministry also asked for the inclusion of all hydro projects as renewable energy projects. Currently, only small hyrdro projects of a capacity of up to 25 MW are deemed renewable energy projects.
“It is a very arbitrary decision to have this distinction,” Sabyasachi Majumdar, Senior Vice President at ICRA, said. “Having all hyrdo projects as renewable will be good for the entire renewable sector because, with large renewable capacity being put in place, you need grid stability and large hyrdro is very good for grid stability.”
The Ministry also requested that supplies made to under-construction hydro power projects be granted deemed export status in line with what is being contemplated for solar projects.
“Granting deemed export status may involve tax shortfall of ₹880 crore spread over a period of five years,” according to the presentation.
“If the idea is to have affordable power, it makes sense to have zero rate GST for renewable energy,” Mr. Majumdar said. “It would be very critical to maintain the growth and competitiveness of the sector. Either of the two options of zero rate or deemed export status will work for this.”
