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India Considers Cutting Import Tax on Solar Panels to Meet Growing Demand for Renewable Energy

India is considering cutting its import tax on solar panels by half and seeking a rollback in goods and services taxes on the devices to make up for a shortfall in local output amid rising demand for renewable energy. The country’s renewable energy ministry has held talks with the finance ministry to approve its request to cut the import tax on solar panels from 40% to 20%, according to three government sources who declined to be identified as the decision has not yet been finalized.

The proposed tax cut on solar panels could help bridge the gap between India’s domestic production and the demand for renewable energy. It would also make solar energy more affordable and accessible to consumers, encouraging wider adoption of the technology. The two ministries may also recommend lowering the goods and services tax (GST) on solar panels to 5% from the 12% imposed in 2021.

India’s current annual solar panel manufacturing capacity is 32 GW per annum, but the requirement is of 52 GW as demand for green, cheaper energy is rising rapidly from corporate offices, industrial units, and big factories. Though solar currently makes up over half of India’s renewable energy capacity, domestic component supplies have been slow to pick up, and the industry was also spooked by higher import taxes. The proposed tax cuts could potentially lower the cost of imported panels by a fifth, bringing them closer to the prices of domestically made modules.

The change will come as a boost for Indian solar power giants such as Tata Power, Adani Green, and Vikram Solar, as well as companies that won solar power supply contracts by quoting aggressive tariffs but face a shortage of local equipment to complete the contracts. India imposed the 40% solar panel import tax in April 2022 and a 25% tax on solar cells to discourage Chinese imports, in line with Prime Minister Narendra Modi’s plan to become more self-reliant and cut emissions by scaling up renewable energy generation.

India’s push for renewable energy comes as the country faces increasing pressure to reduce its carbon emissions and address climate change. The government has set a goal of reducing carbon emissions by 33-35% from 2005 levels by 2030 and has pledged to increase the share of non-fossil fuels in the country’s energy mix to 40% by 2030.

Overall, the proposed tax cut on solar panels is a positive step for India’s renewable energy sector and could help the country achieve its ambitious targets for renewable energy capacity. It would also make solar energy more affordable and accessible to consumers, promoting wider adoption of the technology and contributing to efforts to reduce carbon emissions and address climate change.

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