India’s plan to levy a customs duty on solar panels will be framed in a way that it does not severely hit domestic companies who operate from special economic zones, or SEZs, said a person familiar with the matter.
Such zones are typically considered as foreign territories for import duty purposes. The government, hence, plans to charge a small ‘equalization levy’ on imports of solar panels from factories based in such SEZs and run by Indian companies to sell to domestic customers, said the person requesting anonymity. This would be in lieu of the basic customs duty that is set to be levied on imports of solar components from other nations, mainly China and Malaysia.
Such a move will allow units based in SEZs to be competitive, compared to imports while selling to local customers, and at the same time, make a level-playing field for companies outside these zones who do not receive similar tax and other benefits.
India had set up these SEZs to boost exports and earn valuable foreign exchange. The plan to impose the tax on solar panel imports has, however, led companies based in these zones to approach the government to exclude them from it when they sell to domestic buyers.
SEZ units say the tax incentives that initially helped them set up shop have dried up.
The government is in the process of quantifying these benefits, said the person cited above and familiar with the discussions between the government and industry.
India is set to impose a basic customs duty, which could be up to 20%, on imports of solar panels and modules as soon as a safeguard duty, currently in place, expires on 29 July, Mint reported on 22 June. Modules make up nearly 60% of a solar power project’s total cost.
Chinese companies dominate the growing Indian market for solar components. India imported $2.16 billion worth of solar photovoltaic cells, panels, and modules in 2018-19. The surge in imports had led the Modi administration in its previous term to impose the safeguard duty.
Industry executives said the levy of a basic customs duty on SEZ-based units will hurt them. “If not levied carefully, it (BCD) can be counterproductive as 63% cell manufacturing capacity and 43% module manufacturing facilities are currently located in SEZs," said Saibaba Vutukuri, chief executive officer at Vikram Solar.
Over the years, the tax benefits given to SEZs have diminished with these units having to pay minimum alternate tax (MAT) from 2012.