A Year after GST, there is Confusion and Disappointment for India’s Solar Industry

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Despite being hailed as a potential game changer, the Goods and Service Tax (GST) is yet to reap any significant dividends. India’s solar sector has taken the biggest blunt of India’s marquee tax reform.

The GST was launched on 1 July 2017, and after almost a year of coming into force, the uncertainties surrounding the solar industry are yet to go away. For instance, GST payments promised by the government to many exporters and importers and engineering procurement construction companies have been delayed throughout the country. Apart from that, a morbid uncertainty surrounds around the applicable GST rates on several goods and services that naturally continues to irk the industry stakeholders and their ilk.

So far, it seems that the small and medium domestic companies are at the biggest disadvantage. A recent report claims that these domestic companies have around Rs 30 million stuck in GST refunds. Naturally, this has increased the operational cost for these companies, business for whom has come to a standstill. The happy bubble of GST seems to have burst asunder for these smaller players. For the bigger companies, these small refunds don’t matter anyway.

“EPC players, and to some extent importers and exporters, are the worst affected by the GST delay. But as this is the first year of implementation of GST, these problems were expected. Companies should have been prepared for this, as GST is a regime change not only changing one particular aspect of taxation,” said a source close to the development.

When asked about the ongoing problems for smaller solar companies under the GST laws, a person told that there is a huge gap between the input and output taxes. “There is 13-14 percent stuck in the extra working capital into the projects which we are not going to get anyway. You know the refund process is very bad and the refund is only smooth in export sector of the Indian market. When are we going to get the refund, we don’t know. Small players are not able to use this input credit while the big players, who are into many sectors, can use it in other sectors as input credits. Smaller companies who are only into the solar business cannot do any such things,” he opined.

The resentment among the solar companies seems to have stemmed from not only delayed reimbursements but a complete lack in clarity regarding applicable GST rates. The notion of simplifying the tax structure under the one nation one tax motto seems to be turning into an antagonism with every passing day.

According to a source at a major EPC firm, “Another negative is the GST imbroglio, the 5 or 18 percent rate confusion has spread to modules and this is creating tremendous confusion. Service and supplies are to be considered two separate subjects and if modules are considered at 18 percent GST, the cost of the project will go haywire. MNRE is not helping bring any clarity. With elections due in 2019, no new policy will come up to encourage the sector and build confidence. The GST anomaly must be solved immediately.”

After following up with the MNRE regarding the prevailing confusion within the industry, an official who did not wish to be named said, “In many instances, there was a delay in the process due to the duplicity of data. In many cases, the applicants have applied to both center and state, creating confusion. All this is being taken care of. Recently, a program has been launched to provide GST refunds by the government. GST authorities have been given a 15-day period to resolve refund issues.”

The report that was curated by Mercom India showed the plight of several domestic solar companies that are facing a cash crunch of sorts. “Even after a year since implementation, there seems to be a lack of urgency in resolving the GST issue in solar. This is directly putting many companies at a disadvantage and stalling activity in the sector. Now states are issuing their own interpretations adding to the confusion,” said Raj Prabhu, CEO, and co-founder of Mercom Capital Group.

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