[ecis2016.org] Currently, the GST levied on cement is 28%. The high cost of the infrastructure sector can be credited to this high rate of tax.
The Indian cement sector comes second in the cement industries of the world and accounts for 7% of the global installed capacity. It is also the fourth-largest contributor of the revenue to the government fund, and contributes nearly Rs 50,000 crores per annum to the government via taxes and levies. Currently, government schemes such as the smart city mission are expected to promote the sector to even newer heights.
You are reading: GST on cement and its impact on the cement industry
The Goods and Services Tax (GST) is an indirect tax that is levied on the supply of goods and services in India. The GST was introduced in India to simplify the tax regime of one of the fastest-growing economies in the world. It subsumed all the numerous taxes into one and tried to simplify the system.
GST on cement
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The GST on construction materials like cement is quite high and can be confusing because they fall in different GST slabs, which results in a complicated GST calculation process. Currently, the GST levied on cement is 28%. The high cost of the infrastructure sector can be credited to this high rate of tax.
Before the implementation of the GST regime, manufacturers of cement had to pay several rates and excise duties on cement. These rates and duties depended on factors such as type of cement, industrial or trade purpose, and the supply type (packaged or bulk). The excise and VAT on cement alone rounded up to 24-25% under the old regime. This is why the GST tax was a welcome change for the workings of the cement industry.
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GST for the cement industry is as follows:
- Slag cement, super sulphate cement and similar hydraulic cement, portland cement, aluminous cement – 28%
- Mortars, concretes, refractory cement, and other similar compositions – 18%
- Limestone and other calcareous stone (raw material)- 5%
- Caol (raw material) – 5%
Impact of GST on cement industry
The implementation of the GST system has revolutionised the industry and it has its share of advantages and disadvantages. The GST levied on cement significantly affects the infrastructure and housing industry because of their dependency on cement. When the tax rate is high, the housing and infrastructure cost will also increase. Hence, the lowering of the GST to competitive rates will benefit major stakeholders like the manufacturing units, consumers, and the real estate industry too.
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Cement has a high demand throughout the country. However, the operational bases of cement manufacturers are located near the limestone quarries. This created a high cost of transportation when sending the cement from the manufacturer to the buyer. The GST tax regime has streamlined interstate transport and paperwork related to goods which have significantly reduced the transportation cost. The transit and turnabout time has also been reduced because of simplified documentation. This has also had a positive impact on the cement sector and resulted in a lower cost of cement.
The practice of maintaining multiple warehouses across states by cement manufacturers is no longer necessary after the implementation of the GST regime. The supply chain management has been improved, and the operations have become more cost-effective. Consolidation of warehouses has also led to better operational efficiency.
Cement manufacturing companies
The rate of tax has been reduced for cement manufacturing companies after the implementation of GST. The cost of the product has been lowered, which has increased the demand for the product by consumers, the real estate industry, and the infrastructure sector. However, the 28% tax rate is still quite high and can lead to underutilisation of the installed capacity of the company and increased operating costs. This, in turn, negatively affects the demand for cement. A reduction in the GST on cement could significantly boost the production capacity of India’s cement.
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