• How will GST impact India’s energy sector?

    India is likely to soon approve a key legislative change required for the implementation of the much-awaited Goods and Services Tax (GST) regime. The Goods and Services Tax law seeks to subsume all central and state levies and is being debated in the Upper house of Parliament. Currently, while the centre is constrained from levying taxes on goods beyond the point of manufacturing, state governments cannot levy taxes on services. Thus, an amendment in the constitution is needed to simplify and unify the indirect tax structure.

    According to Morgan Stanley, implementation of GST will be one of the most significant reforms affecting all factors of production and economics. One of the main energy sub-sectors to be impacted post the implementation of GST is renewables. The sector currently enjoys various fiscal incentives like 100 per cent tax holiday on earnings for 10 years, concessional excise and custom duties and so on.

    All these incentives will come to an end in the new GST regime. The indirect tax reform through the GST could, therefore, hike renewable energy costs and pricing and hit investors. The Ministry of New and Renewable Energy (MNRE) has worked out a possible scenario of these impacts. The GST’s effect on cost of setting up of renewable projects would vary across segments, MNRE said in a recent report.

    The impact includes a 16-20 per cent rise in Solar Off Grid costs; 12-16 per cent rise in Solar PV Grid installations and a 11-15 per cent jump in the cost of setting up wind energy projects. Also, biomass projects could see their costs rising by 11-14 per cent while setting up small hydro projects could become costlier by upto 11 per cent. Analysts also expect some negative impact of the new taxation regime on the oil and gas sector even as consumption, logistics and industrial manufacturing could get a fillip.

    As per brokerage Motilal OSwal, GST is likely to benefit the light electrical sector on reduction of tax rates. “Overall, GST should be positive for the sector, since it lowers the effective indirect taxes to around 18% from the current 29-30%. We believe GST will be more positive for the Light Electricals segment, where companies may benefit from volume growth and margin expansion,” Motilal Oswal said in a report. It further said for industrial capital goods, the benefits will be passed on to customers owing to the current weak demand scenario. Zach Cunningham Authentic Jersey

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