The Indian cement industry is the 2nd largest cement producer in the world after China. The Indian Government is highly focused on developing infrastructure, affordable housing, and roads as announced by the finance minister Mr. Arun Jaitley in the budget 2017. So, the cement industry is expected to get a boost shortly.

Under the VAT Regime

The tax rates for cement are extremely complex. For example, there are various rates and specific duties of excise applicable on different types of cement depending on whether they are supplied in bulk form or packaged form, or whether for industrial or trade purposes. The effective rates including excise & VAT total up to around 24-25%.

Effect GST on Cement Industry

Cement will attract 28% GST is a higher rate of tax which means increased costs for the infrastructure sector, refractory cement, mortars, and concretes (mainly used for building industry furnaces, huge ovens, etc.) will attract an 18% tax.  Cement-bonded particle board will attract 12% the main raw materials for cement are limestone, coal, and electricity.

Nothing is mention regarding the royalty that the cement companies pay to the state governments for quarrying limestone. A clean energy cess is levied on coal, which is not available as an input credit because it is not subsumed by GST tax. So these two factors will continue to be outside the purview of GST tax & will be included in the cost of cement production even after GST tax is implemented, as was done previously.

Positive Effect GST on Cement Industry

Warehousing

Cement manufacturers can heave a sigh of relief as the supply chain managements of cement will get a boost under GST tax. Most companies maintain multiple warehouses across states to avoid CST & state entry taxes. These warehouses generally operates below their capacity which leads to operational inefficiencies. Like other sectors, the cement companies will also consolidate their warehouses and maintain warehouses in areas where it is most beneficial (such as Nagpur mile city) thus leading to operational economy.

Benefits on Transport Cost

Most of the cement manufacturers are located near limestone quarry. But demand for cement is Pan India which means that the cost of transporting cement from the manufacturer to the buyer is pretty high. Now with the GST tax, the logistics industry is also going to be overhauled. The transit time will decline as vehicles will spend less time at checkpoints. This will lead to lower transportation cost and in turn, the cement industry will save transport cost.

Short Complex Taxes

Recently, there are multiple excise duties applicable to the cement manufacturers. There are separate rates and specific duties applicable on different types of cement depending on whether they are supplied in bulk form or packaged form, or whether they are for industrial or trade purposes. All these multiple rates will be done away with under GST tax. Only a fixed rate of 28% will apply to cement. This will result in lesser compliance and less complexity.

Created & Posted by Jitender Kumar

Intern at TAXAJ

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