Industry Trend Analysis - India's GST System: A Boon For The Mining & Metals Industry - SEPT 2017

BMI View: India ' s new GST structure implemented on July 1 will be a boon for the country ' s mining and metals industry despite the initial technical hiccups to be expected at the beginning . In the coming years, t he GST structure will address the inefficiencies of the Indian tax system, preventing the common double taxation, cascading impact of multi-level taxation , saving significant time and money spent on logistics and help fight corruption .

India's new tax structure will prove to be beneficial to miners in the long run despite initial teething problems. Since July 1, India's plethora of tax brackets have been subsumed under one common tax structure - the Goods & Services Tax (GST). Under this tax system, tax payers in India will pay a consolidated tax instead of the plethora of taxes such as Value-Added Tax (VAT), Central Excise, Service Tax, Entry Tax or Octroi, Central Surcharge & Cess, Luxury Tax, Entertainment Tax, and Purchase Tax and a few other indirect taxes. Under the GST regime, all the key indirect tax legislations would be subsumed (except for a few taxes including duty on electricity and royalty on the extraction of minerals). Prior to the implementation of the GST, companies having business interests in different states had to deal with multiple tax authorities along with multiple tax rates. Each of India's 29 states set their own sales tax rates, which were often on top of central government taxes. However, with the GST, they now have to pay just once and a uniform rate throughout the country. The GST thus addresses inefficiencies of the Indian tax system, preventing the cascading impact of multi-level taxation, plugging revenue leakages and raising transparency levels in businesses. Key changes affecting miners are:

  • Coal is now taxed a flat 5% under the GST as opposed to a cumulative tax rate of 11.7% (state VAT + central excise duty) previously. However, the Clean Energy Cess (a tariff imposed upon companies to pay for producing or importing coal, which is then used to finance clean environment initiatives, including renewable energy projects) of INR400/tonne will remain.

  • GST To Buoy Production Through Lower Input Costs
    India - Production Growth Of Select Metals (% y-o-y)
    f = BMI forecast. Source: USGS, Bloomberg, BMI

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