• News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
BW Businessworld

GST impact on the Lighting and Manufacturing Sectors

As the debate about the pros and cons of GST persists in the economy, the revised GST rates on the lighting industry with its many other implications is directing towards a positive impact in the long term

There have been some apprehensions about the Goods and Services Tax rates applicable on LED lamps, LED lighting sector as well as lighting industry in general. The government first announced the GST rates on 18 May. Thereafter, after appeals from various sectors, new rates were announced on 3 June. Later, on 11 June, revised rates for more than 66 items were declared. Nonetheless, due to multiple lists and categorisations, confusion persists. 

It may, however, be noted that the 14th Goods and Services Tax (GST) Council Meeting chaired by Union Finance Minister Arun Jaitley approved GST rates for LED lights or fixtures (including LED lamps) at 18 per cent. LED driver and MCPCB (Metal Core Printed Circuit Board) panels were also put in the same category. All these items were under Serial No. 94 of the GST Rate Schedule of 18 May.

Initial Inflationary Impact

In the 11 June GST Council Meeting, the rates for many items were lowered from 28 to 18 per cent. These include electrical filaments or discharge lamps, winding wires, coaxial cables, optical fibre, electrical transformers and static convertors (UPS) among others. Consequently, the rates for LED lights or fixtures including LED lamps and LED driver and MCPCB (Metal Core Printed Circuit Board) were lowered to 12 per cent. 

Going by the overall rates, though, there will be a marginal increase in the rates of LED lights as in the pre-GST regime some states, such as Uttar Pradesh, for instance, were levying zero VAT since they sought to promote energy efficiency. Undoubtedly, the higher rates will affect the customers and industry. 

It should be borne in mind that LEDs are at the forefront of the campaign to combat climate change and global warming. Given their renowned energy efficiency, LEDs help curb carbon footprints by ensuring higher illumination via lower energy usage. The higher rates will exert a short-term impact on sales. 

Overall, GST is bound to benefit companies in the organised sector that have been following rules and regulations but have had to deal with competitors who didn’t. Entities in the unorganised sector have previously enjoyed better margins because they paid lesser taxes. GST will promote better transparency and compliance at all levels of business. Input credits and allied benefits of GST can only be enjoyed by the hitherto non-compliant if they follow the system. To ensure input credits from compliance, businesses will ensure suppliers as well as traders get registered under GST. 

This single factor will boost revenues for the government while creating a level-playing field for all players across industries. Of course, companies that fail to become GST compliant will no longer be in business, benefitting the organised players. Furthermore, compliance will entail some costs that would further erode the profits of unorganised players. 

Manufacturing Gains

Compared to services, goods and manufacturing companies stand to benefit more from GST with the increase in business efficiency. In the pre-GST era, the supply chains of all major manufacturers have been located based upon taxes prevalent in different states. But the 'one-nation, one-tax' concept means there is no need for multiple warehouses in different states. Instead, companies can adapt supply chains as per inventory-carrying costs, tax savings and the response time in meeting market demands. Since inventories would no longer need to be maintained or sent from warehouse to warehouse, the concomitant costs would come down too. Manufacturing companies can gain in a major way from this as inventory storage and warehouse costs could plummet. 

Besides manufacturing, logistics entities would benefit from companies migrating from a ‘multiple warehouses’ model to the ‘hub-and-spoke’ system. Organised warehousing companies would also benefit from higher demand from warehouses in different regions. Although traditional warehousing hubs would continue doing business, there will be demand for warehouses in other regions as organisations stop shipping goods, instead, storing them closer to production centres. Besides, manufacturing companies could also opt to build warehouses in areas considered equidistant from customers and production centres. 

Customers also benefit because GST’s anti-profiteering clause denotes any tax rate reduction in goods or services or input tax credits must be passed on to customers via a proportionate price reduction. Failure to do so could invite penal provisions. If tax savings are passed on to customers, demand is bound to increase. 

Finally, it needs to be stressed that the downsides only hold true for the short term. In the long term, GST is an extremely important reform that will benefit all stakeholders through transparency, better compliance and greater revenue generation. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
GST Rates gst regime

V P Mahendru

The author is Chairman – Managing Director, Eon Electric

More From The Author >>

Top themes and market attention on: