Government resolutions increase the tax burden on solar energy equipment, what is the impact?

In recent weeks, the Gecex (Management Committee of the Foreign Trade Chamber) published three new resolutions About the ex-tariff regime: Resolution 500/2023, 512/2023 and 514/2023.

As reported by Canal Solar, the resolutions published in recent weeks revoked the exemptions import tax for more than 200 photovoltaic equipment, including inverters and solar panels, and brought news for obtaining ex-tariffs in Brazil. 

At Resolution 500/2023, on July 21, GECEX revoked 144 ex-tariffs for NCM 8541.43.00, which is for photovoltaic solar modules, 90 of which were due to “equivalent national production” and 54 due to “outdated technology”.

Already the Resolution 514/2023, of August 16, revoked photovoltaic inverters (NCM 8504.40.90). These former tariffs were revoked for low-power equipment. The deadline for these ex-tariffs to come into force is 60 days after publication.

O Solar Channel spoke with companies that manufacture, import and distribute this equipment to find out the impact on the price of these products and consequently on the market and the progress of the projects.

In evaluating Wladimir Janousek, general director of JCS Consultoria e Serviços and specialist in the international market, the national industry's claim should be made in a more appropriate way. “It is fair in the sense of seeking competitiveness, but the way it is being done it could turn the entire market against the national industry”, he points out.

He assesses that this election should consider an industrial strategy and policy that considers a transition. "What does that mean? It will gradually reduce the number of ex-tariffs, so that the national industry has the capacity to supply this market and, consequently, has the volume of scale to be able to have greater competitiveness in terms of price”, he analyzes.

“The issue of transition is necessary to promote the national industry and, at the same time, not impact the large projects that are underway and that were already designed to use modules at a price (with the exemption) and will not be made viable if this change premise”, explains Janousek.

He also points out that in the last three years, the solar market has learned to work with ex-tariffs, being one of the segments that requested the most claims and had the most concessions approved. And because of this, much of the growth in the photovoltaic market was leveraged through these tax exemptions and/or reductions.

And what to expect from now on In Janousek's assessment, there will be a pass-through and an impact on the final price. “This could represent a certain cooling in growth, especially in centralized generation projects where price sensitivity is very critical. So, there are projects that may be reviewed, reduced or may even be canceled or postponed”, he comments.

Janousek's opinion is shared by professionals who work directly in the distribution of equipment.

“The fall in ex-tariffs without a solid and staggered strategy will only result in an increase in consumer prices, harm to our market and an ineffective strengthening of Brazilian industry”, he assesses. Ricardo Mansour, founding partner of Bluesun.

Another point highlighted by professionals is the limitation of the national photovoltaic equipment industry. In Mansour's assessment, Brazil does not have all the technologies currently available, as the national industry does not have the technical conditions.

“The absurdity of this is that when we look at the essence of the ex-tariff, which is in addition to promoting the sector, bringing technology to the country when there is no similar national one, the demand of national manufacturers is the massive repeal of the ex-tariffs, even if be another technology used. We clearly see the economic bias, the issue is to harm imported goods whatever the disastrous consequence for our market and consumer,” added Mansour.

In his opinion, “the national industry already enjoys tax incentives and government programs, but unfortunately, aiming for their own benefits and those of a few, they harm an entire sector and our country. We also want the development of national industry, but not in this way, but in a structured/strategic, gradual way, with technological development and policies developed with the government”.

“With the fall in ex-tariffs, the panels will necessarily become more expensive, at least 6% in cost”, he assesses Mario Viana, CEO of Sou Energy.

Viana also classifies the fall of her exes as something negative. “In my opinion, it makes no sense for the ex to fall because the Brazilian industry, despite having a similar product, does not have the production capacity to serve the market as a whole. The ex’s fall harms more than it benefits”, he assessed.

This increase in the tax burden should offset the recent drops in equipment prices on the world market.

National industry

Canal Solar spoke with Murilo Bonetto, R&D manager at photovoltaic module manufacturer Sengi. He points out that “this movement is not just for the solar market, it is for the industry as a whole. The rules have returned to the way they were before 2019 and now the factor for granting ex-tariffs will be whether Brazil produces the good that fulfills the final purpose which, in the case of the photovoltaic market, is the generation of electrical energy through sunlight”.

He explains that the ex-tariff regime is an industrial competitiveness policy that has existed for many years, but in 2019 there was a change that ended up introducing factors that make it possible to request an ex-tariff even with national production.

Bonetto highlights that this decision impacted the entire Brazilian industry, not just photovoltaics, leading many companies to close or leave Brazil. “This distortion started to occur and the national industry lost a lot of competitiveness”, he pointed out.

He also comments that with this change in 2019, the import of Chinese modules expanded, since they are cheaper and were exempt from import tax. This, according to him, harmed the growth of the Brazilian photovoltaic industry.

He points out that with the fall in ex-tariff rates, in addition to the development of national industry, Brazil will be able to reduce its dependence on the Chinese market to obtain inputs and to manufacture its products.

“It is a first step towards competitive equality. Of course, costs in Brazil are higher than manufacturing in China, which is subsidized by the Chinese Government. However, with the previous situation it was impossible for the Brazilian industry to have a scale volume to become cheaper. Without the ex-tariff, it is possible to see a horizon for scaling production and being more competitive”, he comments.

“By scaling local production, we were able to enable Brazilian upstream industrialization – from suppliers of glass, encapsulants, junction boxes and even cells”, he assesses.

Still according to him, this last point will bring more independence and Brazil will not suffer from a lack of inputs and high freight rates, as seen during the pandemic due to dependence on China.

He also pointed out that the generation of jobs and income will not be harmed. “There’s room for everyone. And the objective is to generate quality jobs and give people access to the semiconductor industry. We generate more than 300 direct and 2 thousand indirect jobs today, with an increase in the participation of national industry in the market, our numbers could reach more than 10 thousand direct and indirect jobs and R$ 300 million invested in R&D by 2025”, concludes Bonetto.