INCENTIVIZING RENEWABLE ENERGY AND CLEAN

DEVELOPMENT MECHANISM

RAHUL VIKRAM
rahul.vikram@gmail.com
MBA “POWER MANAGEMENT”
NATIONAL POWER TRAINING INSTITUTE
FARIDABAD.
(MINISTRY OF POWER)
 C O N TEN TS
§RENEWABLE ENERGY
§INCENTIVES
§BUG BEARS
§FORWARD AGENDA
§

§CDM PROJECTS
§CURRENT SCENARIO
§FORWARD AGENDA
R E N E W A B LE
EN ER G Y
INCENTIVES – DIRECT TAX
ü10 year tax holiday in a block of 15 years for
§Generation or generation and distribution of power
§Transmission or distribution of power by laying new distribution lines
Tax holiday available to an “undertaking” which begins to
generate power or starts transmission or distribution by laying a network of new
transmission / distribution lines before March 31, 2010
ü5 year tax holiday for business of collecting and processing or treating biodegradable
wastes for generating power
üAccelerated depreciation (80 to 100 percent) on Written Down Value (WDV) basis for
energy saving and renewable energy devices such as wind mills, solar cookers etc
üAdditional depreciation of 20 percent
üOne time election to power generating companies to claim depreciation on straight-line
basis available
üGeneration Based Incentive instead of accelerated depreciation to be examined
INCENTIVES – INDIRECT TAX
üThrust of fiscal incentives for mega power projects (includes hydro power projects of
specified capacities); eligible for complete customs and excise duty exemptions
üPower projects, renewable or otherwise, not qualifying as mega power projects eligible
for concessional rate of customs duty at 18.62 percent (as against 21.52 percent)
üConcessional rates for excise (Nil rate of duty as against 8 percent) and customs duty
(Nil to 5 percent of BCD as against 7.5 percent / 10 percent) available for specific
renewable sources of energy like wind, solar, biomass etc
üRenewable energy devices typically attract a lower VAT rate of 4 percent
üDeemed export benefits available; input side costs reduced by availing deemed export
benefits like Advance Authorization or Deemed Export Drawback
ü
INCOME TAX – BUG BEARS
Restriction on transfer of business – denial of tax holiday in case of business
re-organization via merger / de-merger of a tax holiday business
MAT applicable during the tax holiday – 11.33 percent of book profits, available for
7 year carry forward
Benefit of tax holiday lost for SPVs in view of accelerated depreciation; in case the
company has both tax holiday and taxable business, benefit of accelerated
depreciation available in reducing the overall tax liability
INDIRECT TAX – BUG BEARS
Custom excise duty benefits for mega / non mega projects limited to ‘machinery and
equipments’ – civil materials like structural steel and cement not covered
Generation of power is exempt from excise duty – excise duty paid on input side becomes
a cost
Generation of power is not liable to service tax – several taxable services likely to be
utilized at both capex and opex stage; input service tax a cost
Electricity is not liable to VAT – input VAT or CST a cost
Entry tax; industrial policy incentives available
FORWARD AGENDA
Extension of income tax holiday for power generation from renewables beyond
March 2010
Eliminate the bug bears; tax holiday post merger / demerger and exemption from MAT
Tax credit certificates (TCC) for incentivizing generation of power through renewable
sources of energy. TCC (as adopted in developed countries like US, Germany) could
be adopted which grants tax credits on power generation based on the units of power
generated
Extension of 5 year tax holiday for production of bio-fuels, bio-gas to 10 years
Benefits of accelerated depreciation to plant and machinery employed in clean
technologies such as Integrated Gasification Combined Cycle (IGCC) and Coal-to-
Liquid (CTL) and Coal-to-Gas (CTG) technologies, Super-critical Technology for mega
and ultra mega thermal power plants
Zero rating of VAT for supplies to renewable power projects
Service tax exemptions for input services necessary for setting up as well as operation of
renewable power projects on the same footing as SEZ
FORWARD AGENDA (CONT)
Thrust from state industrial policies
Thrust of fiscal incentives should be towards smaller plants (captive as well as
non mega), since
§Setting smaller plants is easier for enterprises
§Do not require significant / additional supporting infrastructure for wheeling of power
CDM PROJECTS
CDM PROJECTS – CURRENT SCENARIO
No specific provision for taxation or otherwise of income earned from CERs
‘Permanent institutional mechanism’ to coordinate all climate change moves proposed
Establishment of Multi Commodity Exchange (MCX) for futures trading in carbon credits in
India on January 21, 2008 – making it Asia’s first commodity exchange for carbon
trading
CERs notified to be a commodity under the Forward Contracts Regulation Act (FCRA)
Institute of Chartered Accountants of India in the process of formulating an accounting
code for carbon credits
CERs recognised as a commodity from exchange control perspective and hedging on
CERs allowed on overseas exchanges (as per press release)
No clarity on whether CERs are goods or services; consequently, taxability of CERs ie
whether liable to VAT / service tax lacks clarity
Clarification still awaited on whether sale of CERs to overseas buyers would qualify as
exports of goods or services
CDM PROJECTS - CURRENT SCENARIO (CONT)
Foreign exchange regulations permit receipt of advance against export of goods /
services, if exports are made within 12 months
Scheme to promote replacement of incandescent bulbs with Compact Fluorescent Lamps
(CFLs) by leveraging the sale of CERs
Setting up of Bureau of Energy Efficiency (BEE) to put in operation energy conservation
measures specifically to provide high-quality CFLs to domestic consumers
FORWARD AGENDA
Liberalization of External Commercial Borrowing norms for CDM projects
Extension of time period for export of CERs against advance payment
Specific tax holiday benefits to CDM projects registered with UNFCCC
Service tax exemption for services under the taxable category of “commissioning
and installation” etc used in CDM projects
Clarity on treatment of CERs as goods / services; would sale of CERs to overseas
buyer qualifies as export from India
Clarity on treatment of income from CERs – possibly exemption from income tax
similar to those available to sums received under Montreal protocol
Thank you.