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.
Expectations
Even though cement is at the highest slab of 28 per cent, the industry feels that introduction of GST per se has not put any additional burden on it. There is a consensus among the industry players that there was no impact of GST felt on cement prices as it is a demand- supply play in each region.
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.
Beneficiaries
One of the major beneficiaries of GST that has a rub off on the cement industry is logistics. With removal of inter-state barriers for movement of goods and services, transportation has picked up pace. Now, a cement manufacturer could adopt a hub and spoke model of warehousing across different states. "Transportation and storage costs being as high as 25 per cent for cement manufacturers, the industry has been able to save considerably due to GST," says Ashish K Nainan, Research Analyst – Industry Research, CARE Ratings.
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.
Initial Pangs
Even as the signs of stabilisation in the system and compliance are visible recently, the new tax has garnered more brickbats than laurels during the last 12 months. GST was saddled with several changes in rates and compliance requirements, unpreparedness of portal, and lack of awareness among tax payers also accentuated the problem. Lack of awareness regarding the new tax and its associated benefits has prolonged the struggle of small traders in accepting and adapting it. "People did not know what the system was going to be… and many of them were not tech savvy. Initially the system had a lot of teething troubles… But eventually we all have to learn and by now, they have got on board very well and it is functioning very smoothly," says Ladiwala.
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.
Not done Yet
But for some occasional glitches and confusion among tax payers on several issues, GST system seems to have stabilised. So, changes in rates or other aspects addressing/ redressing several nagging problems of tax payers will keep on arising. "The input credit process for recording transaction entries, however, is yet to be implemented, and we are also awaiting the changes proposed in the return filing procedures," says Agrawal of Nuvoco.
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%).
Looking Ahead
From the government’s revenue buoyancy perspective, expansion of tax base is already visible, and there is a traction for achieving Rs 1,000 billion (or Rs 1 lakh core) of target per month of tax collection. That way it is not a mean achievement in a year’s time. "USA is one other country with a similar federal form of government, but it still cannot find a way to implement VAT or GST, which showcases the achievement of India in implementing GST," says Agrawal.
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