India is currently the second-largest cement producer in the world. Governments are major consumers of this industry, so all their infrastructure projects depend on it. It is a fact that cement is one of the few commodities used extensively by the population but attracts taxes of the highest rates. GST charges 28% on cement, and the high tax rate significantly impacts infrastructure costs. Although VAT rates are high, this industry has benefited from taxation under GST. With this information in mind, let's examine how the GST rate will impact the cement industry and its major components.
There is no doubt that the cement industry has been subjected to a long list of taxation and regulatory policies. Cement is brought into the manufacturing sector by natural developers, which are then blended with silica sand or limestone and other raw materials. The cool mix and wet mix processes are carried out routinely in the industry, which reduces its carbon footprint considerably compared with other industries. Cement is subject to GST at a rate of 28% under Goods and Services Tax Act 2017.
Did You Know? The government treasury could lose roughly $13,000 crore yearly if GST on cement is cut to 18% from 28%.
GST Rate On Cement
The cement industry typically paid multiple rates and excise duties before implementing the GST regime. Rates and duties applicable to such goods depended on factors such as -
- The type of cement
- The form of supply (packaged or bulk)
- Trade or Industrial purpose
It would have rounded up to 24-45% under the old tax regime if excise duties and VAT were added together.
You can find an overview of cement GST rates in the table below.
Portland cement, Slag cement, aluminous cement, super sulphate cement, hydraulic cement, whether coloured or non-coloured or in clinker forms
Refractory types of cement mortars and concretes used for constructing industrial ovens and furnaces
Particle boards that are cement bonded
Limestone raw material
Coal raw material
It is important to note that electricity does not fall within the scope of GST. Furthermore, there is no mention of cement companies paying royalties for limestone quarrying. Even a slight reduction in GST rates or raw material prices would reduce cement industry production costs to a substantial degree. Additionally, increasing their prices will negatively impact profitability and operational costs.
Impact of GST on the Cement Industry
With GST in place, the industry has been transformed, with several advantages and disadvantages. Due to their dependency on cement, the infrastructure and housing industries are significantly affected by the GST levied on cement. Housing and infrastructure costs will also increase when the tax rate is high. Due to this, lowering the GST rates will benefit significant stakeholders, including manufacturing companies, consumers, and real estate businesses.
Following are some impacts of GST on the cement industry.
Limestone quarries are often located near cement manufacturing bases. As cement is in high demand throughout India, transportation costs can be increase. With the implementation of GST on cement, transportation costs have been significantly reduced. This tax regime has shortened the interstate review and compliance process.
Consequently, documentation has been simplified, and transit and turnaround times have been reduced, lowering the costs associated with product distribution. This has helped cement manufacturing companies reduce the final cost of their products. A significant impact of GST on cement bag transportation is also an increased demand for logistics services.
To avoid state entry taxes and CST, cement manufacturers previously maintained several warehouses across several states. In many cases, these warehouses were operated below their capacity, adversely affecting their day-to-day functioning significantly and resulting in lower efficiency during daily operations.
There is no requirement for cement manufacturing companies to maintain multiple warehouses following the GST regime. With the consolidation of warehouses, manufacturers can choose warehouses near their production centres and easy to access. They have improved their supply chain management and made their operations much more cost-effective.
It will be helpful to reduce the industry's operating expenses in general if GST is applied to cement. Such a feat, however, can only be accomplished through the optimal utilisation of associated components, namely, the supply chain and warehouses.
Cement companies decide whether end-users can save on their purchase, just like whether they can save on their investment. Generally, it is determined by the likelihood and willingness of consumers to share in the savings.
Increased Component Costs
Following the new regulations, the Central Government sets, cement will be subject to a 28% GST, making it more expensive for the infrastructure industry. During cement production, coal, limestone, and electricity are mixed. A GST of 5% will be applied to limestone, a GST of 5% will be applied to coal, and no GST will be used for electricity. In addition, coal is subject to a clean energy cess, which does not qualify for input credits because it is not subject to GST. Thus, cement production costs will increase due to combining all these factors.
Impact of GST on Cement Manufacturing Companies
As you can see, Ultratech Cement Ltd. reacted to this new tax regime by considering the GST rate on cement and the direct impact it had on them.
Among India's top cement manufacturers, Ultratech Cement Ltd. produces ready-mix concrete, grey cement, and white cement. In addition, this company produces 30% of India's total cement exports by exporting more than 2.5 million tonnes per year, making it one of the world's leading cement producers. Ultratech Cement Ltd. imports cement mainly from Middle Eastern, European, and African countries.
As a result of the GST reduction on cement, the company has decreased the product cost by 2-3%. The company increased cement demand in the infrastructure and real estate industries.
GST Calculation on Cement
By implementing this tax regime, Government finally eliminated multiple rate systems. No matter what kind of cement the company uses - slag, aluminous, super sulphate, or Portland cement - the Government replaces all rates and excise duties with a fixed 28% GST rate. Calculating GST on cement became more straightforward and more accessible as a result of such a move.
Current GST Rates and Real Estate Industry
The Government simplified Indian taxation processes to a great extent due to the introduction of the GST system. Despite this, it has both advantages and disadvantages.
The Government has recently lowered the GST rate from 12% to 5% in the luxury housing category on under-construction properties. At first, the Government decided to boost demand for under-construction real estate. As a result of the removal of ITC benefits, this reduction was somewhat mitigated.
With the current rate of GST for cement, the cost of cement may increase even further, given the upward pricing trend in this industry. As the cement industry plays an essential role in the housing and infrastructure sectors, experts predict it will also affect their overall costs. Therefore, implementing GST on cement has fostered changes in this industry and all related sectors.
Input Tax Credit on Cement Industry
To ensure ITCs are available to the registered persons, they have prescribed a criterion that is predominantly in line with the pre-GST regime. In addition, these rules are specific and stringent.
The following conditions need to be met for a registered cement industry to claim an Input Tax Credit (ITC):
1. Tax invoices, debit notes, or documents verifying payments must be in possession.
2. Receipt of goods or services.
3. Supplier delivers goods on behalf of a registered person against a document transferring title.
4. Furnishing of a return.
5. It is possible to claim ITC when the goods are received in lots or instalments.
6. When the supplier fails to provide goods and services within 180 days of the invoice date, ITC already claimed will be added to the output tax liability, and interest will be charged. It is possible to claim ITC again when the supplier is paid.
7. Capital goods whose tax components have been depreciated will not be eligible for ITCs.
8. Invoices or debit notes received after -
The due date for filing the next financial year's returns or filing the annual return, whichever is later, then no ITC will be allowed.
GST has reduced tax rates and made compliance relatively easy and undisputed. However, the high GST on the cement industry can significantly affect all stakeholders, including consumers, manufacturers, and real estate developers. Additionally, India must adopt competitive GST rates to surpass China as the world's largest cement producer.
The Government must lower GST rates on cement and its forms to provide an incentive to all stakeholders involved in construction and real estate. In light of this, major cement companies must pass on the benefits of lower costs and taxes to the final consumer. These steps will only revive the demand for infrastructure and construction projects.
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