Home/ Industry / Manufacturing/  The real reason for 28% GST on cement

New Delhi: Fears over revenue loss and whether GST rate cuts will be passed on to consumers are preventing the GST Council from reducing the tax on cement. One key feature of the cement industry is that government agencies are key consumers of the product for various infrastructure projects and if the benefit of a goods and services tax (GST) cut is not passed on to consumers, the state will lose both tax revenue and price relief, a person privy to the discussions in the GST Council said on condition of anonymity.

A GST rate cut on cement from 28% to 18% could cost the exchequer about 13,000 crore annually. With 2019 Lok Sabha elections approaching, the government is keen that any tax revenue forgone for the benefit of the consumer reaches the intended beneficiary.

Cement companies have historically been known for cross-holdings and limited competition, with the regulators investigating cases of cement cartelization from time to time.

In October, the Supreme Court stayed penalties worth 6,300 crore imposed on cement companies under an order of the Competition Commission of India (CCI) over alleged cartelization and asked them to deposit 10% of the amount.

An email sent to the Cement Manufacturers’ Association (CMA) remained unanswered at press time on Wednesday. CMA president Mahendra Singhi, also the managing director and chief executive officer of Dalmia Cement (Bharat) Ltd, had on Saturday said that a rationalized GST rate would result in more homes and better infrastructure.

While the watchdog, the National Anti-profiteering Authority (NAA), has been active in cracking the whip on businesses and merchants failing to pass on the benefit of GST rate cuts and rebates to consumers, industry executives say there are no clear industry-specific guidelines on reworking prices of numerous products that use the same input on which a tax cut is announced. This often leads to businesses getting caught on the wrong foot.

An NAA official said on condition of anonymity that it does not go into the profits of a company, only checking if what is collected on behalf of the government is remitted to the exchequer. To pass the test, the business has to either lower the price or increase quantity immediately after the rate cut. There is no bar on increasing the price subsequently if input costs go up.

Industry observers said that it would make sense for the government to bring in guidelines that businesses could follow to avoid a risk to their reputation on account of a profiteering dispute.

“Since the government and its agencies are one of the largest consumers of cement, the necessity of passing on GST rate cuts, whenever the rate reduction takes place, could result in some guidelines being issued as part of the rate reduction process," said M.S. Mani, partner, Deloitte India.

Finance minister Arun Jaitley had on Monday said in a Facebook post that lowering the tax rate on cement from 28% to a lower slab was a priority. Cement is the only commodity used by the common man that is taxed at the highest slab.

Cement roughly accounts for a fifth of construction costs, and a 10 percentage point reduction in the tax burden will bring significant relief to customers, according to analysts. If the cost of construction is, for example, 50 lakh, a 10 percentage point tax cut on cement could lead to a saving of 1 lakh, according to a Mint calculation.

Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Updated: 27 Dec 2018, 10:08 AM IST
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