GST officially came into flow from July 1. Manufacturing sector has been accorded prime importance by the Central Government. Make in India is the biggest example of this. The manufacturing industry believes that GST could enable India figuring on the world map as a hub for manufacturing.
The new paradigm in India’s cooperative federalism is expected to rein in improved tax compliance and facilitate the ease of doing business and pave way for increased investments. From an end-customer’s outlook the indirect tax cost applicable on machine tools was on the higher side, attracting excise duty and VAT depending on the state. Additionally there was a cascading of taxes on account of levy of CST, input tax credit retention under VAT, levy of entry tax, octroi, local body tax, etc. up to the time the product reached the customer.
This has been eliminated with the standard rate of GST at 18% for machine tools. It is expected that there would be a reduction in the overall indirect tax cost.
Such reduction in indirect tax costs can lead to reductions in production cost and an increase in baseline profits. Alternatively, such reduction in costs may also provide headroom for price reductions, benefiting end-users.
There is a need to correct some anomalies in GST rates, whereby some industrial intermediates (as for example, CNC system, ball screws, etc., which are critical inputs to building CNC machine tools) attract GST at 28% whereas the end products (CNC machine tools) are at 18%. The ideal situation would be to tax raw materials, intermediates and finished products at successively increasing GST rates (say 5%, 12% and 18%).
It may take some time for SMEs to move from the earlier tax compliance to GST and once it is done it would be a game changer for the Indian machine tool industry.