GST has scored a few goals – subsuming multiple taxes and a common rate structure – over the last one year. But for achieving simplification and reaping its full efficiency, it has a long way to go.
Goods and Services Tax (GST), which was introduced on July 1, 2017, has turned a toddler recently with its rates, systems and tax payer interface still unstable. Though the new tax system has brought in two basic benefits that were expected of it - subsuming multiple taxes and a tax across the country - over the last one year, it is yet to achieve its broader objectives – simplification of the tax structure and formalisation of the economy aka digitisation and bringing unorganised sector into tax net. It has to go a long way, like it does for any major reform that is expected to bring in long-term benefits.
Billed as ‘one nation, one market, one tax’ this new tax is the biggest tax reform in the independent India.
Earlier, there were multiple taxes applicable to cement industry players based on their location, including several local taxes. “If you added up all those taxes, it was between 31-33 per cent, which has now come down to a flat 28 per cent and uniform for everybody,” says the industry veteran Sanjay Ladiwala of The Tandur & Shahabad Stone Co., Cement Dealers.
Cement (Portland, slag, aluminous etc.) falls under the highest tax bracket, i.e. 28 per cent. Other cement products used in the industry like refractory cement, cement-based particle boards etc., are taxed at 18 per cent. “In fact, cement prices have come down for sometime after launch of GST,” says Nikesh Parekh, Span Cements, Cement Distributors.
However, there are several voices, in the cement and construction industries that are seeking 18 per cent of GST on Cement to give boost to economy.
“The 18 per cent taxation rate would have not only driven up retail demand, but also brought down housing prices significantly, which again is a national agenda of the current government,” says Maneesh Agrawal, Chief Financial Officer, Nuvoco Vistas Corp Ltd.
Paperwork too has eased and is expected to ease further once the E-way bill processes get stabilised over the next few months. Builders and contractors have also been positively impacted by the increased credit flow to them. In fact, post implementation of GST, builders are insisting on proper tax invoices, to reap the benefit input tax credits. “While taxes used to be one of the most critical factors to consider while making decisions; the elimination of non-creditable CST and Entry Tax has allowed buyers to freely obtain materials, inter-state,” says Agrawal.
The tax also envisages bringing unorganised sector players into tax fold. Ceramics was about 45-50 per cent organised. Most of them are expected to become formal, because their consumers will have to procure from GST-compliant companies in order to avail input tax credit.
“The E-way bill that has come in has increased the procedural work for our principals (manufacturers). UltraTech has to make an E-way bill when the stock leaves their stockyard,” says Parekh. Cement manufacturers and dealers associations have held a series of seminars and conferences to apprise the dealers of the nitty gritty of GST, input tax credit and E-way bills.
Nainan of CARE Ratings has highlighted two such issues that are under discussion for resolution – higher tax incidence, inverted duty and input credits for infrastructure segment; and differential rates applicable to granite (18%) and marbles (28%).
However, digitisation as part of formalisation of the economy through GST is a far cry, with cash in circulation now surpassing the level that was prevalent in pre-demonetisation era.
With non receipt of input credits in time being a major issue, the industry in general is hoping for an early solution to this.
BS Srinivasalu Reddy