Impact of GST Rate on Iron and Steel

Shreya Patel

18 Dec, 2023

Over 600,000 people work in India’s steel industry, which provides close to 2% of the GDP of the entire country. The sector with the highest amount of financing in India is the steel industry. One of India’s most important economic sectors is the steel and iron industry. Both advantageous and adverse impacts of the GST have been seen in this industry. The GST has streamlined the tax law and made filing taxes simplified. The construction industry’s basic materials are iron and steel, which are also often used to produce machine parts.

Tax regime prior to implementation of GST

Before the introduction of the GST, the following various tax structures applied to the supply of iron and steel:

Before July 2017, the overall tax that applied to iron and steel sales amounted to about 20% at the aforementioned rates. In the majority of Indian States, the supply of goods manufactured of these materials was subject to the same tariff.

GST rates for iron and steel and their products and services

Impact of GST on iron and steel

• When things were transported from one place to another in the past, business transactions required several indirect expenses. It caused the ultimate price of goods to rise, which fueled inflation. However, the Goods and Services Tax and the unified tax system have greatly helped to address this issue.
• The steel sector first saw a significant rise in imports, and a uniform GST rate now works as a safeguard for the iron and steel industry.
• The drop in the GST rate to 18% (formerly 20%) has contributed to an overall decrease in the cost of manufacturing and an extra 2% savings for the industry.
• The 12% GST rate imposed on this sector has resulted in a decrease in production and final MRP for a number of kitchen items, including stainless steel cookware, spoons, pans, etc.
• The iron and steel sector also benefits from the current 5% rate of taxation on raw materials like iron ore and coal.

• Logistic expenses for the manufacturing industry have decreased as well since steel transportation services in India fall in the 5% tax category.
• GST has significantly shaped the steel and iron industries’ competitiveness in the international markets and, in the process, secured their sustainability. In turn, this will aid in the growth of rural and semi-urban regions, ultimately boosting the country’s economy.
• The country’s domestic output has benefited from the reduction in the GST rates on steel and iron. Additionally, it will be beneficial for facilitating easy interstate travel and getting rid of corruption.
• It has also helped in generating employment opportunities.

Benefits of GST on iron and steel

Reduction in time and logistics cost

The selling price of the goods now increases as a truck travels through several states because of the numerous indirect costs attached to the commodity. There are several checkpoints every time it passes through a state, which causes the delivery of products to the client to be delayed. There is a 40 to 45 percent time savings in the post-GST era.

Utilization of natural resources

GST will offer less developed states additional money in exchange for their resources. The state government will be able to obtain the correct value and price for its resources through appropriate auctions and the removal of the intermediary.

Domestic industry is protected.

Because imports pose a growing threat to the domestic supply of steel, GST rates on imports should be equal to those for domestic supply. The domestic industry plays a major source in the economy, so the protection of the same is vital as well.

Production cost is reduced.

Compared to the existing average rate of indirect taxes, which is 20%, the GST rate is 18%. Consequently, it would lower production costs.

Employment generation

Due to increased transparency under the post-GST system, the implementation of GST will reduce corruption in the severely corrupt states of Orissa, Jharkhand, Karnataka, and Chhattisgarh. The system will be free of middlemen. The post-GST period will need an increasing number of people to enter the workforce, which will increase GDP¹ through creating jobs.

Conclusion

Due to transitional costs and a rise in working capital requirements, the iron and steel sector would initially be more expensive, but, in the long run, this would be advantageous because of anticipated reductions in logistics and cheaper input taxes under GST. The burden of prior and different taxes that had to be paid throughout the transportation cycle has been minimized because of the transparency of the GST. Additionally, it has assisted in using the country’s natural resources in the interior, where mining ventures have also contributed to a rise in employment. The impact of GST on the Indian economy is favourable as the whole country stands to gain significantly.

Frequently Asked Questions

1. https://en.wikipedia.org/wiki/Gross_domestic_product