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Goods and Services Tax (GST)

Goods and Services Tax (GST) Finance and Banking

Don’t Tax Clean Energy

Mains Paper 3: Economy | Mobilization of resources

The newscard has details on the GST Rate Schedule of solar power systems and its modules and panels. The article talks in detail about the implications of the tax and is an important read from UPSC point of view.

Prelims Level: Read the tax slabs for the power systems and its components

Mains Level: Know about the impact of the difference in the taxes on solar energy, how the cess is utilized to write a critical answer on GST.

1. The GST Rate Schedule for goods has put ‘solar power generating systems’ and ‘photovoltaic cells whether or not assembled into modules or made into panels’ into different tax brackets

Tax on solar power

1. GST rate schedule suggested that all solar power generating systems will be taxed at 5%

2. This will be similar to the tax on wind systems

3. This would put solar and wind in the same tax bracket as coal

4. Coal was previously taxed at 11.69%

5. Nuclear fuel too will be taxed at 5%

The state of confusion

1. Another chapter of the GST rate schedule noted that semi-conductor devices including PV cells, which may or may not be assembled into modules or panels, would be taxed at 18%

2. The council has put solar panels in the 5% category

3. The issue of tax on the remanining components of solar systems remains unresolved even on the eve of the rollout of the new fiscal regime

What will be the impact?

1. In the first scenario, utility scale solar (panels and parts), along with other renewable energy sources of electricity as well as coal, is taxed at 5%

2. Analysis suggests that GST would result in a minor rise of 1.6% in solar tariffs

3. In a thriving solar market, this is unlikely to create any setback for the sector

4. While 5% doesn’t seem a mammoth figure, the rise in price of solar power is not insignificant when seen in conjunction with the decline in taxes on coal

5. 60% decline in taxation on coal is likely to make thermal power cheaper by as much as Rs 0.15

6. This would set back some of the rapid advances made in recent times to close the price gap between the prices of solar power and thermal power

7. The cumulative result, with a lower tax bracket for coal and higher (effective) tax implication for solar, would do little to incentivise already apprehensive utilities to purchase more solar power

What about the cess?

1. The change in the tax regime would be accompanied by a change in use for the coal cess

2. The cess is currently contributing to the National Environment Fund (NEF), with a mandate to finance and promote clean energy initiatives

3. It is a carbon tax that will now be redirected

Use of cess:

1. Collections from the cess on coal are now expected to be used to compensate states for the loss of revenue due to the GST regime

2. Between 2010 and 2017, this cess has been used to make budgetary allocations to the ministries of New and Renewable Energy; Environment, Forests, and Climate Change; Water Resources, etc.