The implementation of the goods and services tax (GST), with effect from July 1, is likely to be neutral on the steel sector as there will be just a one percentage point difference between the pre-GST and post-GST rates, but there will be collateral gains for the industry, steel ministry sources said.
“GST is expected to be neutral for the steel sector as overall tax rates has largely remain unchanged but there may be collateral gains for the industry,” said a steel ministry official.
According to rating agency ICRA, the GST rate for the steel sector has been kept at 18%, is largely similar to the effective rate of 18.1%, based on the prevailing excise duty and VAT rates. Both excise duty and VAT would be subsumed under the GST going forward.
While ICRA does not expect any material impact of the GST rate on end-users of steel products, the steel ministry said the GST regime will enable set off of taxes which were hereto not available and hence, effective tax rates is likely to be lower in the GST regime.
However, a lower GST rate of 5% on domestic raw materials such as coal from 11-12% in the pre-GST regime will also help to bring down effective cost of steel production.
“With CENVAT rules being replaced by GST, the credit cycle will become smooth, thereby improving the visibility of revenues and increasing liquidity and availability of working capital,” the steel ministry official said.
India is currently the third largest steel maker in the world and is hoping to more than double its installed capacity to 300 MT by 2030-31 from around 126 MT now.
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