GST: Boon or bane?
Till now, the possible impact of GST on the LED lighting industry is not entirely clear. The pros and cons are summarised below.
Pros
- A unified tax structure may help to create a unified market across the country.
- A unified tax structure may encourage big industries to support the formation of manufacturing clusters to avoid logistics costs, which were earlier nullified by differences in taxes across the country.
- Non-tax payers, who account for 30-35 per cent of the LED industry, have been enjoying an unethical price advantage compared to the big brands. Implementation of GST will compel non-tax compliant players to adhere to the tax system. This will have a long term positive impact on the market as well as give genuine brands a fair advantage.
- Less paperwork and borderless transits may bring down costs and delivery timelines, creating benefits across the value chain.
- GST will improve the efficiency of the supply chain across industries, including the LED lighting sector.
Cons
- The rate of GST on LED lights or fixtures including LED lamps is 12 per cent, whereas the components and raw materials used for manufacturing LED lamps have GST rates ranging from 18 to 28 per cent. This anomaly may result in huge revenue leakage, and might even lead to unethical accounting practices like under-invoicing.
- Metal core printed circuit boards (MCPCB) and LED fixtures will be roughly charged 12 per cent GST. This may result in higher imports of fixtures rather than them being assembled in India.
- Some of the imported raw materials, which have been sourced from the countries under category C of the Foreign Trade Policy 2015-20, were earlier attracting tax at the rate of 2 per cent, but after GST implementation these will come under the 28 per cent tax slab. This will make local manufacture of products that use these materials unviable. Similarly, most of the electronic components fall under the 18 per cent category, up from 6 per cent earlier.
- In the case of most SMEs, some amount of work is done by unregistered dealers. Earlier, such services attracted 0 per cent tax as the turnover of those unregistered dealers tended to be very low. After GST implementation, companies are bound to pay 18 per cent tax (as reverse GST) even in the case of services offered by non-GST registered vendors.