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Cement imports to be cheaper than production post-GST

The overall profit margin of the cement manufacturing industries in the country might decrease after the Goods and Services Tax (GST) was introduced in India last Saturday.

The import of cement to Bhutan from India would become cheaper by about 10%-15% as export from India will have zero taxes.

However, Senior Consultant and Executive Head of Institute of Management Studies limited (IMS) Taxoservice, Naman Sidharth, said that Bhutanese cement exporters are going to suffer approximately by 20% while competing with the Indian market.

He said that before the GST regime, Bhutanese cement manufacturing was benefiting 14.5% tax holiday over the Indian competitors.

“Now with the oncoming of GST regime the benefit will no longer be available, thereby making the domestic cement industry uncompetitive with Indian market,” he said.

Naman Sidarth said that in addition to this loss, India importing from Bhutan will be subject to tax of 28% at the customs gate on invoice value, which would be paid by the Indian importers.

He mentioned though that the amount paid will be allowed as an adjustment when Indian importers resell the cement in their country thereby ensuring that the said 28% does not become a part of cost.

However, he said that it would definitely create cash out issues for Indian buyers and Indian buyers may avoid buying from Bhutanese exporters.

“It will impact cement manufacturing industries in the country. The price of cement imported from India would be cheaper than the price of cement produced in the country,” said the Naman Sidharth, adding that this is because the production price of cement in India may decrease.

Cement manufacturers in India will benefit as the supply chain management of cement will get a boost under GST. Most companies maintain multiple warehouses across states to avoid GST 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.

Most of the cement manufacturers in India 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.

Marketing manager of Penden Cement Authority Limited Tashi Dukpa said that as of now the authority cannot say whether GST will impact the price of domestic cement since the real price has not reached the market.

Dechen Dolkar from Thimphu

 

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