Impact of GST on the Cement Industry

Cement will attract 28% GST resulting in increased costs for the infrastructure sector. Are
there any positives for the industry? Read our analysis here.

Updated on Jun 18, 2018 - 06:08:39 PM

The Indian cement industry is the second largest cement producer in the world right
after China. The Indian Government is highly focused on developing infrastructure,
affordable housing and roads as announced by the FM Mr. Arun Jaitley in the
Budget 2017. So, the cement industry is expected to get a boost in the near future.
The question though is, will the implementation of GST affect this projected growth?

Under the VAT Regime

The tax rates for cement is extremely complex. For example, there are various
rates and specific duties of excise applicable on different types of cement depending
on whether they are supplied in bulk form or in packaged form or whether for
industrial or trade purposes. The effective rates including excise & VAT totals up to
around 24-25%.

Impact of GST on Cement

Cement will attract 28% GST, i.e., a higher rate of tax which means increased
costs for the infrastructure sector.
Refractory cement, mortars, concretes (mainly used for building industry furnaces,
huge ovens etc.) will attract 18% tax.
Cement Bonded Particle Board will attract 12%.
The main raw materials for cement are limestone, coal and electricity. The tax rates

on these are as follows:

 Limestone is taxed at 5%
 Coal is capped at 5%,which is a reduction from the earlier rate of 11.69%
 Electricity is outside the purview of GST

Nothing is mentioned regarding the royalty that the cement companies pay to the
state governments for quarrying limestone. Clean energy cess is levied on coal,
which is not available as an input credit because it is not subsumed by GST.
So, these two factors will continue to be outside the purview of GST and will be
included in the cost of the cement production even after GST is implemented, as was
done previously.
Positive Impact of GST on Cement Industry

Warehousing
Cement manufacturers can heave a sigh of relief as the supply chain management
of cement will get a boost under GST. Most companies maintain multiple
warehouses across states to avoid CST and state entry taxes. These warehouses
generally operate below their capacity which leads to operational inefficiencies. Like
other sectors, the cement companies will also consolidate their warehouses and
maintain warehouses in areas where it is most beneficial (such as Nagpur-0-mile
city) thus leading to operational economies.

Savings on Transport Costs

Most of the cement manufacturers are located near limestone quarries. But demand
for cement is pan-India which means that the cost of transporting cement from the
manufacturer to the buyer is pretty high. Now, with GST the logistics industry is also
going to be overhauled. The transit time will decline as vehicles will spend lesser
time at checkpoints. This will lead to lower transportation costs and in turn, the
cement industry will save transport costs.

Less Complex Taxes

Currently, there are multiple excise duties applicable to cement manufacturers.
There are separate rates and specific duties applicable on different types of cements
depending on whether they are supplied in bulk form or in packaged form, or
whether they are for industrial or trade purposes etc.
All these multiple rates will be done away with under GST. Only a fixed rate of 28%
will apply on cement. This will result in lesser compliances and less complexity.

Conclusion
All these put together may reduce the operating costs for the cement industry in the
future. However, reduction in costs for the end-consumer will occur only if the
cement companies pass on their savings to the consumers. Till then, it is
expected that prices of cement will increase, at least temporarily, once GST is
implemented. In turn, costs for infrastructure and housing which are highly
dependent on cement, will also increase.