The impact of corporate tax rates cut on solar industry

The government’s move to slash corporate tax rates to 22% from 30%—and to 15% for new manufacturing companies—has largely been hailed by the solar industry even as it feels impact will be limited.

September 21, 2019 Uma Gupta

The effective corporate tax rate of around 25% would be on par with other South Asian countries.

Harpreet Singh/Flickr

The Indian government has announced a sharp cut in corporate tax rate to 22% from 30%, in a move to increase the global competitiveness of Indian companies. The effective corporate tax rate would be 25% inclusive of all surcharges and cess. The option to pay the revised tax will, however, be available to only those companies that do not avail any exemptions or incentives.

Further, in order to provide relief to companies which continue to avail exemptions or incentives, the rate of minimum alternate tax—a fixed percentage of company profits payable as tax—has been reduced to 15% from existing 18.5%.

In addition, companies incorporated on or after October 1, 2019 making fresh investment in manufacturing will have the option to pay income-tax at the rate of 15%. This benefit is available to companies which do not avail any exemption/incentive and commence their production on or before March 31, 2023.

The solar industry has largely termed the announcements, made by Finance Minister Mrs Nirmala Sitaraman, as ‘big’ positive moves that will help corporates to pass on benefits to end consumers besides allowing fresh investments in manufacturing.

Hailing the corporate tax reduction, CleanMax Solar CFO Nikunj Ghodawat said: “This change is perfectly in line with our demand from earlier this year requesting for the corporate tax to be at par with other South Asian countries. It will have a multiplier impact as each industry will have the possibility to pass on the tax benefit to the end user, thus relaying the impact across the economy up to the last mile consumer.”

“In view of the current downturn, such policy moves are in the right direction to boost speedy execution of projects and enable government to achieve its ambitious infrastructure growth target, including renewable energy which is one of the key focus area of the government,” Ghodawat said.

Vikram Solar director-Legal and Corporate affairs, Amit Gupta said the reduced corporate tax (22%) will boost private investment in the country.

“Further, the reduction in minimum alternate tax to 15% will benefit the manufacturing units including those in solar manufacturing and will give them elbowroom to expand their existing capacities,” he said, adding that the option for new manufacturing companies to pay income-tax at the rate of 15% will help India to attract fresh investment in manufacturing.

Limited impact

While at the outset the reduction in corporate tax is seemingly a boon for India Inc, and a bold move by the Indian government, the anticipated positives for the solar manufacturing industry seem limited, according to Waaree Energies director Sunil Rathi.

Terming fiscal incentives still a better choice, he said: “Due to the cut-throat competition from international solar manufacturing players and lack of concrete policies such as anti-dumping, domestic manufacturers are dependent on fiscal incentives from the government which outweigh the proposed benefit of the reduced corporate taxes—thus making the former the ideal choice.”

However, Rathi expected the tax cuts to provide an impetus to start-up India and infuse innovation and R&D in the solar sector through disruptive young players. “This, in turn, is likely to bridge the demand-supply gap in the country which will act as a multiplier to the current manufacturing capacity in India,” he said.

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