Impact of GST on the Cement Industry

Monisha Chaudhary

04 Jun, 2024

With the implementation of goods and services tax, not only the price but the demand and supply of the cement products available in the market have all been impacted significantly. India is the second-largest largest in the world when it comes to production of Cement. The cement industry of India is one of the fastest-growing industries in India as a result of the development of infrastructure in the country. The government alone consumes a lot of Cement, which is because the infrastructure that is being developed all uses Cement.

Natural developers bring Cement into the industrial industry, where it is combined with silica sand, limestone, and other raw materials. The industry commonly uses the cold mix and wet mix processes, which significantly lowers its carbon impact when compared to other industries. According to the Goods and Services Tax Act of 2017, Cement is liable to GST at a rate of 28%.

With a Compound Annual Growth Rate of 4.94 percent from 2023 to 2028, the sector is expected to reach 4,832.6 million tonnes. Limestone, coal, and power are the three basic raw resources utilised in the production of Cement. Limestone and coal are both subject to a 5% tax, whereas electricity is exempt from GST.

Pre-GST tax regime for the Cement Industry

Excise taxes and other rates of taxation on Cement were a difficulty for cement manufacturers prior to the implementation of the GST system. The types of Cements that were available, whether they were used for industrial or business uses, and whether they were supplied in bulk or as packaged supplies all had an impact on the rates and charges that applied. Only the value-added tax and excise would alone add up to 24-25% under the previous tax regime.

GST rates on Cement

How to calculate GST?

All former numerous rate structures and excise taxes were replaced by a flat 28% GST rate on Cement under the GST regime. This rate is the same for all forms of Cement, including Portland, slag, aluminous, and super sulphate cement. The introduction of this change has greatly simplified and relieved the burden of calculating the GST on Cement. The GST may be calculated using the following formula: GST Amount = (Original Cost x GST%) / 100.

Impact of GST on Cement Industry

• GST has had both positive and negative effects on cement prices.
• Due to their reliance on Cement, the infrastructure and housing industries are heavily impacted by the GST imposed on Cement.
• The cost of manufacturing for cement producers has grown due to the high GST rate of twenty-eight percent for cement products. As a result, the industry’s profit margins have decreased.
• Manufacturers were given credit for excise taxes spent on materials like limestone, gypsum, and coal under the former tax structure. The ITC is not permitted for the tax on certain inputs under GST since they are subject to tax at a lower rate.
• The implementation of GST has streamlined the tax framework for cement goods, regardless of the high GST rate.
• Prices have decreased in several states as a result of the reduction in the total tax burden.
• Consumers have seen the effects of the GST on cement pricing, especially in the market for affordable houses. The affordable housing market, which consumes a lot of Cement, has been most negatively impacted since price increases may have a big influence on the whole cost of construction.

Impact of GST on the Transportation Cost of Cement

The cost of delivering Cement is frequently high due to the product’s strong demand throughout India. The expense of transportation has drastically decreased after the implementation of the GST on Cement. Cement producers typically place their operating places close to limestone quarries. The interstate inspection and compliance procedures has been sped up by this tax system. The distance between the producing facility and the final destination, the type of transportation that is used, and the accessibility of infrastructure like highways, ports, and railroads can all impact how much it costs to transport cement goods.

Impact of GST on warehousing

Before being transported to their final location, cement products are stored in warehouses by cement merchants and manufacturers. Cement goods are stored safely in warehouses by means of amenities like loading docks, storage racks, and security systems. The fact that these facilities frequently run below capacity results in operational inefficiencies. Like other industries, the cement industry will concentrate its warehouses and keep them in advantageous locations. For the purpose of avoiding state taxes on entry and the Central Sales Tax, cement makers had to maintain several warehouses in various states.

This practice tended to result in insufficient use of warehouse capacity, which had an effect on operational effectiveness. However, under the GST system, cement production enterprises can combine their warehouses and choose more convenient sites.

Impact on other industries

The government made the decision to lower the GST rates that apply to houses that are still under construction in the luxury property category by 12% to 5%. The decision to do so was first made to increase demand in the market for real estate. The elimination of Input Tax Credit (ITC) advantages, however, reduces the effects of this reduction. Given the rising pricing tendency in this business, the price of Cement may rise even more at the present rate of GST. Experts believe that because the cement business is so vital to the infrastructure and housing industries, it will also have an impact on those industries’ total pricing. As a result, the introduction of the GST on Cement has sparked change in this sector as well as all others that are associated.

ITC on the Cement Industry

The tax that the buyer must pay when purchasing goods or services is known as an input tax credit (ITC). Input tax credit alludes to the tax paid at the time of purchase that is subtracted from the responsibility due on outward supplies. In other words, the output tax due on sales is reduced by the amount of the input tax credit. The ITC on GST paid for certain construction-related items has been prohibited by the government. This has pushed up construction costs and reduced the profitability of real estate developers.

Conclusion

The GST has made taxes less complicated and more portable overall for the cement business, but compliance is still difficult. To encourage all parties involved with construction and real estate, the government must reduce the GST rates on Cement and its forms. The GST has an effect on the real estate market as well, with current trends aiming to increase demand, lower building costs, and streamline the tax code.

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