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The new tax structure will be neutral for the steel sector but there may be collateral gains for the industry, which was under rough weather until recently. According to analysts tracking the sector, 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.
Puneet Puliwal of the CRU Group said: “Costs will fall and there will be more clarity on cash flows. This will also help the steel companies overcome their NPA problems and get credit more easily. However, In terms of taxation, a real estate developer will have to pay more on steel inputs. The automobile sector will also see a similar impact.”
Analysts monitoring the sector were not surprised with steel being put under this slab. Sidharth Jain of EY said: “The rate was expected to be around 18 per cent. The current effective rate is about 18.125 per cent so there is a marginal reduction. However, when steel is not used for non-creditable purposes, there will be an increase in the tax that the end user will have to pay.”
“While classification of steel in the lower tax bracket would have helped steel manufacturers to compete with players in nations like China, a robust credit mechanism and anti-profiteering clause in the GST regime will help to reduce effective procurement cost. Further, a lower GST rate of 5 per cent on transportation services will also help to bring down effective manufacturing cost,” said Biren Vyas, Partner at Grant Thornton.
Puliwal added that the 5 per cent tax on coal will reduce the costs of steel companies. “Most of the integrated players have their own captive power generation and about 40-50 per cent of their coal requirement is from purchasing from the spot market where coal prices will fall.”
Ramu Gaur of Bhushan Steel said: “We do not see any change in our business because of the new tax rate, which is more or less the same. The move will not have any significant impact on our supply chain either.”
Tata Steel and JSW Steel did not comment on this development.
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