GST on Cement - Current Rates, Impact and Calculations

Under the previous tax regime, excise duties and Value-Added Tax (VAT) alone would account for approximately 24%-25%.

The following table provides a brief on the GST rates applicable to cement:

It is important to highlight that electricity is not included within the scope of GST. Additionally, there is no specific mention of the royalty paid by cement companies for limestone quarrying. Moreover, even a slight decline in the prices of these raw materials or the GST rate would significantly lower the cost of production in the cement industry. Conversely, if their prices were to increase, it would raise operational expenses and negatively impact profitability.

GST's Impact on Cement Industry

Having examined the different tax rates applicable to cement under GST, let's explore the impact of GST on the cement industry.

Increased Cost of Components: Under the Central Government’s new regulations, cement is subject to a 28% GST, making it more expensive for the infrastructure industry. Cement production involves the use of coal, limestone, and electricity. As per the latest regulations, limestone has a GST of 5%, coal has a GST of 5%, and electricity falls outside the scope of GST. Additionally, coal is also subject to a clean energy cess, which cannot be claimed as input credit under GST. Consequently, the combination of these factors contributes to higher production costs for cement.

Cost Savings in Warehousing: The new GST norms for cement have a positive impact on the entire cement warehousing supply chain. Previously, cement manufacturers operated multiple warehouses to avoid paying Central Sales Tax (CST) and state entry taxes, resulting in underutilised warehouses. However, with the new GST regulations, cement manufacturers can optimise their warehousing operations by strategically locating warehouses in areas that offer the greatest benefits, improving overall efficiency.

Significant Transportation Cost Savings: Currently, cement manufacturers establish their operations near limestone quarries, resulting in high transportation costs to reach customers across the country. However, the latest GST norms for cement streamline the transportation process by reducing the number of checkpoints for vehicles transporting cement. This reduction in checkpoints helps to reduce transportation costs for the cement industry as a whole.

Simplification of Taxes: Presently, cement manufacturers have to navigate through various excise taxes based on factors such as bulk or packaged transportation, trade or industrial purposes, and more. However, with a fixed 28% GST rate on cement, the tax structure becomes simpler, reducing complexity and compliance requirements for cement manufacturers.

Overall, GST on cement has the potential to reduce operating expenses for the industry. However, it should be noted that achieving this requires optimal utilisation of associated components, such as supply chain and warehousing facilities. Furthermore, whether end-users will be able to save on their purchases depends on the decisions of cement companies. It largely depends on their willingness to pass on a considerable portion of the savings to consumers.

Calculating GST on Cement

The introduction of the GST system eliminated the previous complex structure of multiple tax rates. Instead, a uniform 28% GST rate was implemented for all types of cement, including slag, aluminous, super sulphate, or Portland cement. This simplified the process of calculating the applicable GST on cement, making it less cumbersome and more straightforward.

GST's Impact on Cement Manufacturing Companies

Let's examine the influence of the GST rate on cement and how it specifically affected Ultratech Cement Ltd., a prominent player in the industry. Ultratech Cement Ltd., a major manufacturer of ready-mix concrete, white, and grey cement in India, holds a powerful position as one of the largest global cement producers. It contributes to 30% of India's total cement exports, exporting over 2.5 million tonnes annually to countries in Europe, the Middle East, and Africa.

In response to a reduction in the GST rate on cement, Ultratech Cement Ltd. has reduced the rate of its products by 2-3%. The objective of this strategic move is to boost the demand for the company's cement within the real estate and infrastructure industries, which are highly dependent on cement. Ultratech Cement Ltd. seeks to boost its market presence and increase sales by offering more competitive pricing.

Current GST Rate and its Impact on Real Estate Industry

The implementation of the GST system has brought about significant changes to the Indian tax landscape, streamlining taxation processes to a great extent. However, it is crucial to consider both the pros and cons associated with it.

Recently, the government decided to reduce the GST rates applicable to under-construction properties in the luxury housing category from a high 12% to a lower 5%. The objective of this move was to stimulate demand for under-construction properties in the real estate sector. However, due to the withdrawal of Input Tax Credit (ITC) benefits, the impact of this rate reduction was somewhat offset.

Nevertheless, considering the ongoing upward trend in pricing within the real estate industry, it is expected that the cost of cement will further increase under the current GST rates applicable to it. Given the significant reliance of the housing and infrastructure sectors on the cement industry, experts believe that this will contribute to an overall increase in their costs as well. Therefore, the implementation of GST on cement has not only brought about significant changes for the cement industry but has also impacted all related sectors.