GST: Impact of Goods ans Service Tax on the Cement Industry of India
Indian Cement industry is World’s second largest cement producer with an aim to grow at a CAGR of 11.14% in volume terms during FY 2011-FY 2017. The Indian Government is highly focused on developing infrastructure, affordable housing and roads. But, the question before us is that what affect Goods and Service Tax (GST) will have on the industry after levy of 28 percent tax, which seems to overburden the sector with already prevailing tax entities and under developing area in the urbanization.
Here is a brief discussion:
| Taxation | Value Added Tax Regime | Goods and Service Tax Regime |
| Tax Rate | The tax rates for cement is extremely complex, accounting to 24-25% | Under Goods and Service Tax, cement will be taxed 28%. |
| Complexity | There are various rates and specific duties of excise applicable depending upon types, purpose and amount of cement. | Nothing as such. A single tax will be applicable. |
Impact of GST on Cement
- Currently, there are different excise duties applicable to cement manufacturers. There are separate rates and specific duties applicable on:
- different types of cements
- supply in bulk form or in packaged form, or
- for industrial or trade purposes etc.
- Under Goods and Service Tax, Only a fixed rate of 28% will apply on cement resulting in lesser compliances and less complexity.
- As most of the cement manufacturers are located near limestone quarries where the demand is to be fulfilled for the nation, transporting cement is very expensive.
- But, under Goods and Service Tax regime, this transit time will decline as vehicles will spend lesser time at checkpoints.
- Further, this will lead to lower transportation costs.
- Overall realisations of cement companies will substantially improve post Goods and Service Tax
- The tax rate under VAT regime is 24-25%, but under Goods and Service Tax it will be 28%. This may make cement little
- To avoid CST and state entry taxes, most companies maintain multiple warehouses across states which generally operate below their capacity leading to operational inefficiencies.
- The supply chain management of cement will definitely get a boost under GST as the cement companies will consolidate their warehousesand maintain warehouses in areas where it is most beneficial.
It can be rightly concluded that impact of Goods and Service tax would be positive with less complex taxation, less transits time, less transportation costs, warehouses would be consolidated, and a better supply chain management system.