Solar power companies fret over GST cost; find out why

Lack of clarity on how the likely additional costs as input taxes in the upcoming Goods and Services Tax (GST) regime would be allowed as a pass-through by the regulators has put the potential bidders for solar power projects in a bind. At stake are solar projects with combined capacity of at least 8 gigawatt (GW) for which the Centre and several state governments are slated to issue tenders in the remaining part of this fiscal year.

Currently, the solar power equipment are largely exempt from indirect taxes across states but implementation of GST would mean a possible 18% tax on them. With electricity likely to remain outside the ambit of GST, the companies won’t be able to offset the input taxes. The threat of cost increase in the GST regime exists for all power developers, including thermal power units, but the issue is more serious for solar and wind power firms.

In the case of solar firms, capital costs make up almost the entire chunk of the generation cost and variable costs are minimal. Also, unlike thermal power companies — mostly owned by diversified corporate groups, most solar firms won’t be able to offset the input tax costs against tax liabilities on outputs other than power. Read More…