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Budget 2023 Expectations: Solar Companies Seek Lower GST, Customs Duty Cut On Panel Imports

Companies in the solar sector are seeking a flat 5% GST rate and a halving the 40% import duty on solar panels.

An oil pumpjack behind a bank of solar panels near Longview, Alberta, Canada, on Tuesday, April 26, 2022. Prime Minister Justin Trudeau’s government wants a 42% reduction in emissions from the oil and gas sector as part of Canada’s plan to meet its 2030 emissions-reduction goal.
An oil pumpjack behind a bank of solar panels near Longview, Alberta, Canada, on Tuesday, April 26, 2022. Prime Minister Justin Trudeau’s government wants a 42% reduction in emissions from the oil and gas sector as part of Canada’s plan to meet its 2030 emissions-reduction goal.

Indian companies in the solar sector are looking for a cut in customs duties and taxes in the upcoming Union Budget 2023 to make the development projects viable.

The commissioning of solar projects in the country has taken a hit due to the imposition of a 40% import duty on solar panels from China and other foreign countries, industry executives told BQ Prime. The government can alleviate the woes of the developers if the import duty is cut in half in the upcoming Union Budget on Feb. 1 and the goods and services tax is reduced to a flat 5%, they said.

"The reduction in GST to a flat 5% from 13.8% at present will further help the industry grow," said Puneet Goyal, co-founder and director of SunAlpha Energy, a Chennai-based solar EPC firm.

The GST on solar projects was 5%, which was increased to 8.9% and finally to 13.8% in the course of three to four years, Goyal said, resulting in an increased tax burden on the project developers. "If the goal of 500 gigawatts of renewable capacity by 2030 is to be reached, it is important to give incentives to developers."

The government should also reinstate 100% accelerated depreciation on solar projects, which is currently at 60%, according to Goyal. This would incentivize faster adoption of solar, he said. The other demand, he said, is to make provisions for adequate module capacities and project financing at competitive rates.

Promoting domestic cell and module manufacturing capacity through schemes like production-linked incentives is a good step, but there is still a big gap between demand and supply because India has limited operational capacity and module exports, said Surendra Kumar Gupta, chief financial officer at Amp Energy India Ltd.

The restriction on imports through high tariff barriers such as basic customs duty has resulted in high module prices in India, according to Gupta. It has adversely affected project viability and slowed the growth of the renewable sector, he said. "High-interest costs on project financing have put extreme pressure on project economies, further affecting the industry," Gupta said.

On April 1, 2022, the Indian government imposed a basic customs duty of 40% and 25% on the import of solar panels and solar cells, respectively, to boost domestic manufacturing in the country. However, this also led to an artificial hike in the price of domestic panels when the prices of imported panels rose by 40–50% in the last six months.

In projects where system integrators and developers have deployed all the capital, a delay in the net metering process due to the unavailability of net metres has also resulted in a delay in revenue recognition.

"Given the overall competitive scenario where margins are wafer-thin, the overall cashflows envisaged goes for a toss making it difficult to even sustain for one to two months in such small projects," said Saurabh Solanki, director and regional business head C&I-North, Amp Energy India.

"The shortage of net metres has a cascading effect on the volumes that the roof-top industry can clock; hence, it is pertinent that on an immediate basis, some solution is identified, or else overall capacity addition will fall short of the targeted numbers," Solanki said.

Gautam Das, Founder and Chief Executive Officer of Oorjan Cleantech said that until the semi-conductor capacities ramp up and the solar panel capacities are set up under the Solar PLI Scheme, the government should allow Chinese manufacturers on the approved list of modules and manufacturers and cut the BCD to less than 10%.   

Overall, until the gap between domestic demand and supply of modules is closed and PLI-based manufacturing capacities are operational, the government should favourably consider the following measures:

  • Import routes for all projects in the renewable industry should be re-allowed with a 5% duty. 

  • Remove BCD restrictions on the import of modules for the next 12-18 months to help improve the availability of high-quality modules at competitive prices.

  • As PLI scheme is to support the domestic renewable industry, the export of cell/modules should be completely restricted.

  • The government support the renewable industry by bringing down interest rates for project financing to 3-5%, in line with international levels.

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