GST rejig charges up clean energy, jolts fossil fuels

NEW DELHI: The rationalisation of GST (goods & services tax) announced on Wednesday charged up India’s energy transition by partially shifting the tax burden from clean energy products to fossil fuels, jolting oil and gas exploration production along the ‘polluters pay’ principle.

From September 22, renewable energy products will attract 5% GST against 12% at present, which according to Girishkumar Kadam of ICRA, will lower the capital cost of projects by 5%. As a result, the cost of generation for solar power projects will drop by 10 paise and for wind power projects by 15-17 paise per unit. This will benefit utilities in the form of lower power purchase costs and promote faster adoption.

In contrast, oil and gas projects will be levied GST at 18%, up from 12% at present, raising the cost of exploration, field development and production. This will further squeeze realisation, already moderated by subdued oil prices.

Lower GST, according to Avaada group chairman Vineet Mittal, will lead to rapid expansion in the domestic supply chain for solar gear and create demand by making products affordable and accessible for consumers. Reduced tax burden on companies will make green hydrogen investments more viable and help attract capital.

Pipeline companies will also see margins squeezed due to increased cost of operation.

The double whammy for oil and gas companies, according to Prashant Vasisht of ICRA, the oil companies will be saddled with stranded taxes because they cannot offset these by claiming input credit as oil and gas are outside the purview of GST.

These factors could act as disincentives, leading to a situation where companies may find some assets unviable chose to stall their development.

The signal on coal is mixed. While GST has been raised from 5% to 18%, the compensation cess of Rs 400 per tonne has been subsumed in the revised rate, effectively reducing tax burden for producers and consumers. Unlike cess, companies will be able to offset the GST by claiming input credit.

ReNew CEO Sumant Sinha sees the move effectively bringing down thermal power costs and increasing competitiveness of industry.