Solar firms expect imposition of differential tariffs for projects using domestic content

C Shivakumar

Chennai:

As Tamil Nadu is banking on renewable energy to boost its energy sector, solar firms are expecting imposition of differential tariff for projects using domestic content in the Union budget.

K Subramanya, Chief executive officer of Tata BP Solar said that domestic content was mandated in the Phase-1 of Jawaharlal Nehru National Solar Mission for crystalline silicon only.  This resulted in a loop-hole, which was massively exploited, skewing the ratio of thin film (100 per cent imported) to crystalline silicon in India resulting in shutdown of Indian Solar Manufacturing facilities.

He said both the solar cells and modules are exempt from import duty and excise duty; this results in overflow of input credit as some of the inputs attract duties; it is, therefore, requested that the anomaly of the inverted duty structure is addressed to make local manufacturing to have equitable treatment with imports.

He also said the domestic solar Photo voltaic (PV) cells industry is also subject to payment of value added tax and sales tax, which is not applicable for import of cells and modules. “It is proposed that the VAT and Sales Tax on the manufacture of solar cells and modules be made nil to give the domestic solar PV manufacturing  companies an equitable treatment,” he added.

Hemal Zobalia, Partner-Tax, KPMG says that amidst other commercial challenges such as coal crisis, forex fluctuation, etc, the termination of tax holiday available to power projects on March, 31, 2012 would act as a big set-back.  Further, the new direct tax code proposes to substitute the current 10-year profit based tax holiday with new investment based tax incentive which will adversely impact the returns (IRR) from the project.  In order to support growth in power sector, this budget should consider extending the current tax holiday regime.  To address the issue of indigenous coal scarcity, customs duty of 5 per cent on import of coal should be exempted, Hemal said.

“Most countries like US, China, Brazil, Spain, etc promote renewable energy through tax incentives.  The current accelerated depreciation incentive for renewables loses its shin due to non-availability of generation based incentives and proposed investment based tax incentive,” Hemal added.  Ramesh Kymal, Chairman and Managing Director, Gamesa India, said the Union Ministry of Finance and Ministry of non-renewable energy and the Planning Commission should extend the Generation Based Incentive (GBI) Scheme with an incentive of Rs 1.2/KWh with no cap. (Currently Rs 0.5/KWh with a cumulative cap of INR 62L per MW over 10 years)

 Tax holidays under section 80IA should be continued in 2012-13 and in DTC as well.  This is essential to promote investment in essential infrastructure such as Power. Any additional burden will only pass on to the end consumer.