Amid the Berserk of Safegaurd Duty, What Industry Expects Pre-Budget?

The few concerned areas for the Indian Solar industry jotted in a single piece with the existing and the recommended solutions as per Vikram Solar which is India’s one of the biggest Solar Module Manufacturer.

Amidst the whole ruckus of the anti-dumping and safeguard scenario, the annual budget is very soon to be announced as well. The post-GST and the Pre-Budget phase is being keenly observed by the players in the industry. Recently, the Director General of Safeguards recommending imposition of 70% safeguard duty on imported solar equipment. The sudden declaration of levying the proposed safeguard duty has sent a series of speculations among the industry with a lot of mere skepticism of what next the finance minister Arun Jaitley has in his annual budget 2018 briefcase! Here are the few concerned areas for the Indian Solar industry jotted in a single piece with the existing and the recommended solutions as per Vikram Solar which is India’s one of the biggest Solar Module Manufacturer.

Taxes (Direct & Indirect)

The Government has imposed direct and indirect taxes of manufacturing of solar modules in different avenues. The government has to keep in mind several regulations and obligations before concluding the whole slab of taxes to be or already imposed taxes and is of national interest. On the other hand, the industry has a different approach toward the taxes and may or might be of a narrow interest and where the conflict of interest may arise. The government is already working in a flourishing and nurturing its goal of generating 100 GW of solar energy by 2022 and is hustling hard to make every possible effort and make the process more comprehensive and easy to the manufacturers and consumers. In order to make the process more aligned the industry has its own concerns and obviously, has their solutions as well, which might prove to be a path-breaking conclusion of the pertaining ‘ conflict of interest’ as discussed earlier. Here we tried to get the collective scenario and situations already existing at one place to make policies in terms of Taxes.

Direct Taxes:

The current provision claim of 80% depreciation for Solar Industry was allowed till 31^st March 2017, however, it was reduced to 40% in the last budget.  The industry, in pursuit of improvement, recommends that the 80% accelerated depreciation benefit should be reinstated for the Solar industry to achieve the 100 GW target of National Solar Mission.

As per the current provision units operating in Special Economic Zones (SEZs) are liable to pay the Minimum Alternate Tax (MAT) at the rate of 18.5% + Surcharge & Ed. Cess& Higher Ed. Cess, which eventually leads to tax incidence of 21.34%. The industry in order to support make in India and encourage solar industry, recommend that MAT should be removed for the next 10 years for units operating in Special Economic Zones in order to increase their competitiveness.

Section 10AA of Income tax act provides tax holidays for the industries established in the specified area for the upliftment of these areas/ industries. The benefit is available as 100 % tax holidays for First 5 years, 50%, for next 5 years & 50% for the next 5 years subject to specified investment criteria after 10 years.  A budget for the financial year 2016-17 introduced a sunset clause for benefits available to units operating in Special Economic Zones under Section 10 AA of Income Tax Act. These benefits will be available to the unit which start production on or before 31^st March 2020. The industry recommends the benefit should be extended as 100% for the 10 years period and this implementation of this sunset clause to be extended to 31^st March 2022 in line with the National Solar Mission target of 100 GW by 2022.

Section 80IA provided 10 Years Tax Holiday to entities involved in developing infrastructure as the benefit was ended on 31^st March 2017.The industry recommends that the Tax Holiday to entities involved in developing infrastructure should be reinstated for a further period of 10 years so that Indian companies are able to compete globally.

Currently, Corporate tax incidence is around 34%. In the line of the vision of the Finance Minister Arun Jaitley to bring down a Corporate tax to 25% by 2020, industry recommends the same be brought down.

The existing Corporate tax incidence is around 34%. In the line of the vision of Honourable Finance Minister of Indian Mr. Arun Jaitley to bring down a Corporate tax to 25% by 2020, we would recommend that same should be brought down. Under Section 32AC, An additional benefit of 15 % of the value of an investment will be given if the investment in new Plant & Machinery sums up more than 25 Crores. The same benefit was available until 31st March’2017. We would recommend that the benefit of Section 32AC should be extended. This would further promote the Make in India Program as it would incentivize the manufacturing facilities in India.

Indirect Taxes:

Currently, Solar PV modules are classified in 5% tax bracket under GST but other equipment required to deploy solar power plant is still categorized in tax brackets higher than 5% but in the Pre-GST regime, solar industry used to get Excise duty exemption for equipment used in solar power plants. This helped the industry reduce the cost of solar power. Also, in the current GST regime, the industry would recommend that all equipment involved in deploying solar power plants including work contracts should be categorized under 5% tax bracket in line with the implementation of the same in the textile industry.

The industry recommends that the input services provided to power sector should be 100% exempt/zero-rated project. As such all the inputs used for installation & operations of the power plant should have nil GST Rates. This should also be applicable for the units supplying the goods to Power Plant in contrast to the current situation in which the electricity produced is outside the purview of GST, thus the input GST would increase the cost of power considerably, the industry emphasized in its recommendation.

The industry needs more Policy support:

 Besides the above improvement and tax regime strengthening recommendations and suggestion the industry further recommends that NCEF should be made available to Solar manufacturing firms to expand their Research and Development in order to produce more cost-effective energy solutions. A 2% additional clean cess on diesel should be imposed and same should be used to expand EV infrastructure in the country. The cess collected will be added to the NCEF fund.

States/Municipal corporations across the country can be provided with a dedicated budget for solar rooftop installations under NCEF.

In wake of WTO ruling on DCR Government buildings like school & hospitals should have mandatory rooftop installations and modules which are procured should be manufactured indigenously.

The revised MSIPS notified vide Notification No. 27(35)/2013/IPHW dated 03.08.2015 should extend all relaxations, improvements, and benefits retrospectively to all projects approved before 3.8.2015 and not limited to units set up or expanded with effect from August 2015.

In order to promote Indian Solar Industry, we would recommend that the Indian Government should launch such incentives to Indian Industry. We would recommend that the Government should provide the Solar Industry interest subsidy as in line with the “Technology Upgradation Fund Scheme” for the textile industry.  The promotion of solar Industry will have a multi façade benefits say Development of Make in India Project, Development of green energy, Development of completion of electrification target of the whole India by 2020.

We would recommend that 5% Interest subsidy should be provided on interest costs for the funds borrowed towards investments in Capex and Working Capital for current and new investment with a loan tenure of 10 years.

10% production subsidy to counter-act the export subsidy offered by China should be provided.

We would recommend the inclusion solar Power equipment manufacturing under the priority sector lending.

We would recommend providing land for solar manufacturing units on 99 years lease and low-cost electricity should be provided to these units.

We would recommend that super-deductions of 200% of the R&D expenditure for new and clean solar technology development (which could be a part of the offset / Make in India arrangement) should be allowed.

The budget must increase the allocation for grid infrastructure renewal since it becomes even more important with the increase in the share of RE.

We would recommend that the incentive given to Solar Industry under MEIS Scheme of 2% should be increased to 5% to promote the export of solar products globally.

We would recommend that government should amend to CSR act and accordingly every unit eligible for CSR should spend at least 25% of their CSR expenditure on clean energy deployment in rural areas.

Also, we reached out to Indian solar industry veteran Sushil Kumar Sarawagi, Director, Kor Energy (India) Pvt. Ltd. For his recommendations on the upcoming 2018 Union budget.

Que: This year’s budget holds special significance as this will be the first budget in the post- GST regime. What are your expectations form this budget?

 Ans: I am expecting the budget to be rewarding for everyone. It should allow savings in the hands of individuals in the form of income tax rebates so that there is raised in the individual spending power as well as in the adoption of green energy.

Que: The stakeholders from the Industry and Trade sector held a pre-budget meeting with Finance Minister and recommended corporate tax rate reduction to 25% to encourage large investment. What is your take on this and how will this help the solar sector in India?

Ans: Reductions in corporate tax rates are very much required as this will help them to improve their Profit after Tax. Industries including solar industry are still recovering from initial difficulties of GST and this will certainly give a boost to them. The reduction in corporate tax rates in India will also attract new investments.

Que: What kind of support do you seek for innovation, employment generation through investment in the Solar Sector?

Ans: There should be an encouragement for financial assistance or tax rebates or interest rebates for investing into research, development, and innovation in new green technologies. At the initial stage, such support is required to encourage manufacturing in India.

Que: Do you seek any specific incentives for new investments, highlighting the need to establish 100 GW of Solar Energy Generation by 2022?

Ans: Reductions in interest rates for capital expenditure or working capital, a continuation of income tax benefits for investment into renewable energy are very much required. Also, continuations of capital financial assistance for residential and social sectors for Rooftop Solar Installation are needed.