From the day it had been conceived perhaps a decade back promoted as “One Nation, One Tax”, GST has been controversial to say the least. Apart from the quite unusual fact that alternately, every political party has supported and opposed it by turns, the industry bodies in particular have over-hyped the importance of GST, with many of them and their members going to the extent of saying that implementation of GST will add a clear 2 per cent to the GDP growth rates, which, by the way, has already been added through other innovative means.
Mind you, GST is no rocket science, because not only that similar unified tax regimes have done well in other countries, but also that there is a huge amount of precedences and learnings already available as if as a “help-book” to guide us in formulating our GST framework and to ensure its success. But, as the D-Day draws nigh, we seem to be getting into a more and more mixed, uncertain and complex situation around GST implementation and its aftermath, all of which is no longer pure optimism, but some kind of skepticism. Instead of one or even two-third tax rates, we now have many, and we also seem to have added many many forms and returns and processes, all of which would negate the case for simplification. If we are lucky, we may even see a continuation of the ubiquitous inter-state checkpoints, which our truckers love to hate.
If one could summarise, GST was aimed at creating a common marketplace out of the States of India, integrate and simplify taxes of all kinds for goods and services, drastically reduce paperwork, increase transparency, curb corruption in tax administration – all of which expectations could be summed up in one strategic objective – improvement of ‘ease-of-doing business’. At the same time, there perhaps was another target in the mind of the policymakers, a more tactical one at that, which was to make sure that GST does not push up the prices of goods and services used by commoners, and be inflation neutral, if not inflation positive. So what do the cement sector players have to say about the impending imposition of GST, in the context of these two broad objectives?
The Government has already gone to town announcing that cement, smartphones and medical devices will be cheaper under GST, which pre-supposes that by elimination, the Government itself is admitting that prices of all other products will remain static (theoretically possible, but practically, not) or will go up. Cement being one of the chosen few, one of the luckier items, so to say, the industry should be extremely happy under the circumstances. Apparently, and unfortunately that is not the case. The industry thinks that its net tax incidence will go up, and this thought is reflected in the various feedbacks that are coming through at this stage.
For example, IIFL has stated that tax incidence on cement industry will go up, and it goes on to quote an unnamed research agency to say that cement companies may go for a price hike to mitigate the increased GST rate and hence there won’t be any earnings impact. The Cement Manufacturers’ Association has lamented, “High GST on cement is a missed opportunity to spur growth.” Clearly, there are contrasting and opposing viewpoints regarding GST vis-a-vis cement, and the jury is still out on what is the reality. There is but no doubt whatsoever, that the industry is desperately looking forward to some healthy growth in demand, even as it has declined by 3.7 per cent in April 2017.
However, in the interim, as we wait for clarity to emerge, the pitch has been queered by the unusual “Anti-Profiteering” clause inserted in the GST Bill, and the domestic as well as international business community will be watching very closely how this clause is interpreted and enforced, going forward.
Sumit Banerjee Chairman, Editorial Advisory Board