GST Changes: Relief for Industries, Yet Gaps Persist
The recent revisions in India's Goods and Services Tax (GST) structure have generated a mix of relief and concern among various industries. The introduction of a two-slab rate of 5% and 18% aimed to rectify the inverted duty structure affecting a wide range of products. However, the elimination of the 12% slab has resulted in significant discrepancies between input and output tax rates. This issue is particularly pronounced in sectors like textiles and agriculture, where raw materials are often taxed at a higher rate than the final products.
For instance, steel, a crucial input for many industries, continues to be taxed at 18%, while finished products like bicycles and e-bicycles are taxed at only 5%. This creates challenges for manufacturers, as they find themselves paying more in taxes on raw materials than they collect from their sales, leading to an accumulation of unutilized Input Tax Credit (ITC). The textile industry, which has seen some corrections, still faces minor inversions, particularly with inputs for polyester fibre and textile machinery.
Industry executives have voiced their concerns over the impact of these tax discrepancies on working capital. They emphasize that while about 80% of the inverted duty structure issues in textiles have been addressed, some significant gaps remain, causing cash flow problems for businesses. Furthermore, the fertiliser sector also faces similar challenges, with some inputs still retaining an 18% tax rate. The government has reduced GST rates on certain fertiliser inputs, but industry sources indicate that packaging costs still contribute to the inversion.
To address these issues, the GST Council has proposed amendments to streamline the refund process for companies affected by the inverted duty structure. These amendments would allow for a provisional sanction of up to 90% of the refund claimed, thus easing the financial burden on businesses. The GST authorities anticipate that these changes could lead to substantial savings for the fertiliser sector, with estimates suggesting a reduction in annual refund outgo by around Rs 5,000 crore.
Despite these efforts, many industry representatives, particularly from the edible oil sector, express disappointment that their concerns regarding the inverted duty structure have not yet been adequately addressed. The accumulation of input tax credit due to high tax rates has been particularly detrimental to domestic producers. The ongoing discussions and proposed solutions highlight the need for continued reform in India's GST framework to ensure a more balanced and equitable tax environment for all industries.
