GST on Cement

With a production capacity of over 340 million metric tonnes, the cement industry in India contributes significantly to a range of government infrastructure projects and is also widely used by the masses. Given its wide usage, the applicable GST rate on cement is quite high. Over the course of this article, we shall explore the impact of GST on cement and how it will affect the growth of the industry.

When it comes to the GST rate on cement, the following rates are applicable on the various types of cement products:

Now that we have had a look at the various slabs of the rate of GST on cement, we shall explore the effect/impact of GST on the cement industry.

• Increased Cost of Components: As per the new regulations set by the Central Government, cement will attract a GST of 28%, making it costlier for the infrastructure industry. Cement is manufactured by using a mixture of coal, limestone, and electricity. As per the latest regulations, limestone will attract a GST of 5%, coal will attract a GST of 5%, and electricity falls outside the ambit of GST. Additionally, when it comes to coal, a clean energy cess is applicable, which is not offered as an input credit, given that it does not fall under GST. Hence, a combination of all these factors will increase the production costs associated with cement.

• Cheaper Warehousing: With the new GST on cement norms, the entire supply chain associated with cement warehousing will receive a boost. Given that most cement manufacturers operate a multitude of warehouses to avoid paying CST, as  well as taxes associated with state entry. These warehouses often suffer from operational inefficiencies due to operating way below their capacity. Now, with the new GST norms, these cement manufacturers can avoid operational inefficiencies by operating warehouses in areas most beneficial to their cause.

• Massive Savings on Cost of Transportation: At the moment, cement producers base their area of operation near limestone quarries. However, since the demand for cement is received from every corner of the country, manufacturers have to spend a heavy amount of money on the transportation of cement to the customers. However, with the latest GST on cement norms, vehicles transporting cement can bypass many checkpoints, which will help the cement industry as a whole in bringing down its costs.

• More Simplistic Taxes: At the moment, there exists a multitude of excise taxes that cement manufacturers have to pay. These taxes vary based on a range of factors, including whether the cement is transported in bulk or in a packaged form, whether the purpose of sending cement is for trade or industrial purposes, and so on. With the new rate of GST on cement at 28%, a fixed rate applicable, there will be lesser complexity as well as compliances that cement manufacturers will have to adhere to.

With the new GST norms introduced by the Central Government, the taxation procedure has been simplified to a great extent. However, we must note that this comes with its own pros and cons.

 

In a recent notice issued by the government, GST rates on under-construction properties were slashed from 12% to 5%, specifically pertaining to luxury properties. The main aim of this decision was to boost the demand for under-construction properties. However, by withdrawing the ITC benefit, the benefits of this move were negated.

 

We must also note that since the real estate sector is an ever-evolving sector, we can expect the price of cement to rise dramatically in the time to come, even with the existing rate of GST on cement. Given that the real estate and infrastructure industry relies heavily on the cement industry, for the former to grow, the latter will also be boosted significantly.

 

While there can be no doubt that the introduction of GST has significantly eased the taxation system and procedures in the country, the high rates of GST on cement will affect a wide range of parties, including manufacturers, consumers, and the real estate/infrastructure industry. We can expect a reduction in the cost for the consumers only if manufacturers of cement are capable of passing on their savings to the former. Till that happens, as GST rates increase, we can expect the cost of cement to rise as well.