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Goods and Services Tax (GST) is an indirect tax applicable throughout India which replaced multiple cascading taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and First Amendment) Act 2017.
What is Goods and Services Tax (GST)?
- GST is a single tax that will replace all the existing indirect taxes levied in India. The Indirect taxes include Sales tax (VAT), Excise duty (CENVAT), Service tax, Octroi, Entertainment tax, Luxury tax etc.
- GST has a dual structure. It will have two components: Central GST and State GST. Central GST will replace Central excise duty, services tax and additional customs duties etc. and will be levied by the Centre. State GST will replace VAT, Central State Tax, entertainment tax, luxury tax, lottery tax, electricity duty etc. and will be levied by the states.
What will be the Effect of GST on Construction prices
Short Term Impact of GST on Construction Materials
There will be a increase in the prices of the construction materials (except for cement) because of the increase in the tax rates. In GST regime, Smaller unorganized manufacturers and dealers (Usually revenue less than 75 lacks) has the advantage of certain tax exemption/evasion. However these exemptions will discontinue and all companies will have to levy uniform taxes on similar products post GST implementation.
In order to ensure that the buyer is able to get the GST credit of purchased goods, the sellers will have to pay the GST collected every month. This might strain their existing working capital cycles and result in higher costs for them. So there will be an increase in working capital requirement for companies in the short run. But in the long run will be beneficial in light of the expected reduction in logistics and lower tax on inputs under GST.
Thus the initial impact of GST would be a slight increase in the cost of construction materials.
Long Term Impact on Construction Materials
There will be a slight decrease in the cost of construction materials over the long run.
But there will be no major impact on the Total Construction cost in Long run because of GST implementation. Although input tax credits help in decreasing the prices of various Construction Materials, an increase of tax for composite contracts to 12% and increase in the taxes on materials like plywood and electrical will normalize the total impact on Construction Costs.
