Weekly Current Affairs

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Ministry moots zero-rate under GST for renewables

  • The Ministry of Power has recommended that renewable energy should be given a zero-rate tax status under the Goods and Services Tax, predicting several adverse effects to the economy if there is any increase in power tariffs due to the new tax regime.
  • Any further tariff increase due to GST may have a multiplier effect on economic development as:
    • Difficulty in passing through the impact to agriculture and domestic consumers
    • Adverse impact on industrial production and GDP
    • Adverse impact on Make in India
    • Adverse impact on export competitiveness of Indian products and services
  • The Ministry took a benchmark GST rate of 18% and calculated that, if renewable energy is taxed at this rate, then capital expenditure in the sector would increase by 10-12% and tariffs for wind and solar energy could increase by as much as Rs.0.5 per unit.
  • Power Ministry’s recommendation was for the GST Council to choose one of two options: either give renewable energy (RE) supply a zero-rate status, or give RE deemed export status.
  • The Ministry also asked for the inclusion of all hydel projects as renewable energy projects. Currently, only small hydel projects of of up to 25 MW capacity are deemed renewable energy projects.
  • If the idea is to have affordable power, it makes sense to have zero rate GST for renewable energy.