India tax reform could add 20 per cent to renewable project costs

Proposed tax reforms in India could raise the cost of developing renewable power projects in the country by up to 20 per cent, a new study has found.

The proposed Goods and Services Tax (GST) bill, currently pending in Parliament, would levy a value-added tax on the manufacture, sale and consumption of goods and services throughout India, replacing both central government and state taxes.

A study commissioned by the Ministry of New and Renewable Energy (MNRE) and reported in the Economic Times of India showed that costs would increase for all renewable power projects including solar, wind, biomass and small hydro.

The study stated that the cost of developing a grid-connected solar photovoltaic (PV) project could increase by 12 to 16 per cent, while an off-grid project could see costs rise by 16 to 20 per cent. The cost of developing a wind power project could grow by 11 to 15 per cent.

In addition, current incentives in place for renewable power projects, such as a 10-year tax-free period, would end.

The MNRE has reportedly shared its findings with the Department of Revenue in order to request exemptions for renewable projects. The Economic Times quoted “a highly-placed official” in the Ministry as saying: “We are requesting an exemption. The GST bill has provisions for exemptions by state governments and we believe that renewable energy is a fit case for exemption. We are in dialogue with the Department of Revenue and they do see merit in our argument.”   

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