Ministry of New and Renewable Energy (MNRE) has invited comments and views of the implications of Goods and Service Tax (GST) on delivered cost of Renewable Energy by 15th March, 2016.
To understand implication of GST on the delivered cost of renewable energy MNRE commissioned a study in July 2015 which then stated that implementation would increase the levelised tariff/cost of setting up and operations of various renewable energy systems/applications, in the range of 1-20%.
MNRE commissioned study reveals that current Indirect tax regime is affected by innumerable snags such as complexity, tax on tax and lack of credit fungibility. Considering the issues dogging the current Indirect tax regime, Govt. will introduce a comprehensive Indirect tax regime under GST. All existing Indirect taxes, barring a select few, would be included into the new GST.
Taxes on consumption or sale of electricity have been proposed to be kept outside GST. In such case, the electricity generated by renewable sources would continue to be outside the GST regime. However, taxes on various capital goods, inputs and input services (both forming part of capital cost as well as operation & maintenance costs) used for generation of renewable energy should be subsumed in the GST regime. Any impact of taxes paid on procurements used in renewable energy sector would have a direct impact on cost of renewable energy Basis information available in the public domain on levy of GST, it appears that taxes on procurements for renewable energy sector would go up, which would lead to increase in cost of renewable energy (resulting in negative impact for the sector).
Further, it is imperative to note that the adverse impact of tax cost would vary from project to project (as well as from one source of renewable energy to another) based on the procurement pattern (import vs. domestic purchase) as well as extent of exemptions available currently.