India currently boasts of being the second-largest producer of cement in the world. Notably, the government is one of the largest consumers for this industry, and consequently, all its infrastructural endeavours depend on it. Regardless, cement is perhaps the only commodity that is used by the population extensively but attracts taxes of the highest slabs. Keeping this detail in mind, let’s proceed to find out the impact GST on the cement industry and its major components at a glance.
Cement is subject to GST at a rate of 28%. Such a high rate of tax is significantly responsible for increasing the cost of the infrastructure sector. Despite this high rate, taxation under GST has been a welcome change for the workings of this industry.
Typically, prior to implementation of the GST regime, cement manufacturers had to pay multiple rates and excise duties on cement. In a broader sense, such rates and duties applicable were dependent on factors like –
Under the old tax regime, excise duties and VAT alone would round up to 24%-25%.
This table below offers a fair idea about cement GST rates in a nutshell.
| S.N. | Material | GST rate |
| Refractory cement concretes and mortars used for constructing industrial furnaces and ovens | 18% | |
| Cement bonded particle boards | 12% | |
| Limestone (raw material) | 5% | |
| Coal (raw material) | 5% |
It must be noted that electricity does not come under the boundary of GST. Also, there is no concrete mention of royalty paid by cement companies for limestone quarrying. Furthermore, even a small reduction in the GST rate or pricing of these raw materials will decrease the cost of production of cement industry to a great extent. Conversely, an increase in their prices will not only increase operational expenses but will also hamper profitability.
These pointers explain how GST rate on cement impacts this industry –
Usually, cement manufacturers locate their operational bases near limestone quarries. The fact cement has a high demand across India often makes the cost of transporting the product high. After GST on cement was implemented, the cost of transportation has reduced significantly. To elaborate, this tax regime has shortened the process of interstate review and compliance.
In turn, it has simplified documentation and has reduced transit and turnaround time, which directly lowers the cost involved with product distribution. Collectively, this has helped cement manufacturing companies to lower the final cost of products. Also, a hike in demand for logistics services due to seamless transit is one of the most notable impacts of GST on cement bag transportation.
Previously, cement manufacturers used to maintain several warehouses located across states to avoid state entry taxes and CST. Often such warehouses used to operate below their capacities which would hamper the efficiency in their day-to-day functioning to a great extent.
However, post-GST regime cement manufacturing companies are not forced to maintain multiple warehouses. Now manufacturers can consolidate their warehouses and select them in areas that are closer and easily accessible. It has directly improved their supply chain management and has helped operations become much more cost-effective.
Collectively, GST on cement may prove useful in lowering this industry’s operating expenses in general. Nevertheless, it must be understood that such a feat can be achieved with the optimal utilisation of associated components, namely – the supply chain and warehousing facilities.
Likewise, the question of whether end-users will be able to save on their purchase relies entirely on cement companies. It is mostly based on the likelihood and willingness to pass on a significant share of savings to consumers.
With the implementation of this tax regime, multiple rate systems were eliminated once and for all. All rates and excise duties were replaced with a fixed 28% GST rate on cement irrespective of whether the material was – slag, aluminous, super sulphate or Portland cement. Such a move made the entire process of computing applicable GST on cement simple and less cumbersome.
Let’s take into account the GST rate on cement and its direct impact on leading cement companies by gauging how Ultratech Cement Ltd. reacted to this tax regime.
Ultratech Cement Ltd. is among the largest and leading manufacturers of ready mix concrete, grey and white cement in India. This company also happens to be one of the leading global producers of cement as it accounts for 30% of India’s total exports by exporting more than 2.5 million tonnes per annum. Countries in the Middle East, Europe and Africa are among the top importers of Ultratech Cement Ltd.
With a reduction in GST on cement rate, the company has lowered the cost of its products by 2-3%. It was done to boost the demand for the cement produced by this company in the real estate and infrastructure industry.
The introduction of the GST system has revolutionised the Indian tax system and simplified taxation processes to a great extent. Regardless, it has its share of advantages and drawbacks as well.
Recently, the government decided to lower the GST rates applicable to the under-construction property from a sharp 12% to 5% in the luxury housing category. The decision was initially aimed at boosting the demand for under-construction property in the real estate sector. However, with the withdrawal of ITC benefit, the impact of this reduction was somewhat nullified.
Nonetheless, given the upward pricing trend in this industry, it can be expected that the cost of cement will increase even further with the prevailing rates of GST for cement. Since the housing and infrastructure sector depends significantly on the cement industry, experts believe that it will push their overall cost as well. Thus, implementation of GST on cement has been paramount in fostering changes not just for this particular industry, but all related sectors as well.