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Govt may scale down tax sops for renewable energy
January, 14th 2008
The government may scale down incentives of a flagship scheme for wind, bio-mass and solar power, if not scrap it altogether. Both the finance ministry and Planning Commission have been opposing the scheme under the ministry of new and renewable energy whereby 80% depreciation of the renewable energy devices is exempted from income tax, sources close to the development told SundayET.

Once that happens, all enterprises, which set up renewable energy plants merely to reduce their tax liabilities in associated profit making businesses, will be hit most. Under the accelerated depreciation scheme, loss in renewable energy business can be set off against the profit of another business owned by the same entrepreneur. Major equipment makers for renewable energy such as Suzlon Energy, Enercon and Vestas will also feel the hit, as their sales will go down. Many non-serious players are flooding the market mainly because of tax incentives.

The ministry of new and renewable energy has now appointed a consultant to figure out whether the scheme has outlived its utility, and how alternative incentives can replace the scheme. There were reports that even bollywood actors bought machinery for wind power to save tax. But the scheme has not helped much in generating power? The incentives should be given on power generation and not on installation, sources said.

Under the income tax rules, the block of assets which are covered under the scheme include solar collectors, solar cookers, solar water heaters, solar refrigeration, cold storage and air-conditioning systems, wind mills, biogas plant and biogas engines, equipment for utilising ocean waste and thermal energy etc. Despite those incentives, the generation of wind and biomass power stands at mere 7660 MW and 560 MW respectively, according to the data available till November, 30, 2007.

Minister of state for new and renewable energy Vilas Muttemwar said that the government must provide incentives for this sector. Yes, the Planning Commission has been opposing this scheme as they have always been opposed to any form of subsidy. But let me tell you that incentives are must if you want investments to pour in this sector. After all, the capital costs are so high that there would be no investors if incentives are taken away. However, we are open to the idea of giving generation-based incentives, the minister said.

Chandrashekar Iyer, associate director, PwC adds, The present incentives increase the capacity of renewable energy, but do not lead to generation. The incentives should have a linkage to generation. Significantly, the ministry of new and renewable energy has recently launched a scheme for solar energy generation, where incentives are linked to the generation of the power, and not to the installation of the plants. In fact, those availing this scheme are not allowed to take the benefits under 80% accelerated depreciation scheme.
 
 
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