<< UPDATE: Meanwhile, the GST was lowered to 5% instead of 18%. >> The Indian government is planning on an 18% tax for solar cells and modules as part of the new Goods and Service Tax (GST) Bill. However, this number is considered bewildering by many and is highly discussed. The final tax might eventually be an entirely different one.

India’s solar market is growing bigger and stronger at a remarkable pace. As a result, the Indian government recently announced that solar cells and modules will be taxed with 18% as part of the new Goods and Service Tax (GST) Bill. However, many find this unclear and further information has been requested.

Figure might be corrected

The planned tax, which will be enforced from July 1st, is set to be 5% for all renewable energy-based devices except for solar cells and modules, where 18% is planned, but mentioned in a different section. Even coal has been allocated a 5% taxation. Jasmeet Khurana, the secretary of the Ministry of New and Renewable Energy (MNRE), has now conceded that this tax might be an anomaly and could be reduced to as little as 5%.

Hence the government has been asked for a clarification, which is expected within the next few days. However, Khurana also said that the issue might drag on for a while.

Concern over consequences of 18% tax

Members of the industry are expressing their concern over the consquences of an 18% tax, while the government is confident that the growth of India’s solar sector will not be affected by the upcoming changes. Experts estimate that the 18% tax would result in an increase of up to 20% in module costs and 10-15% in inverter cost, putting up to 20 GW worth of current solar projects at stake. Furthermore, the cost of raw material imports may increase as well, creating more difficult circumstances for India’s domestic manufacturer’s.

Should the government decide to proceed with the 18% tax, this may well be based on the fact that solar equipment costs have been falling steadily. It is most unlikely that it will benefit the industry, though, especially as developers may not be expecting a tax increase, which could potentially put new projects at stake.

Complications may arise during tax implementation

Many experts, among them the leading consultancy and knowledge services provider in the Indian renewable market, Bridge to India, expect different complications to hinder the implementation of the new tax. This concern is based on the wide range of power purchase agreement (PPA) templates across the country, and the unwillingness from distribution companies to accept any higher tariff rates.

Read an update on India here: India: Only 5% GST on solar modules instead of 18%