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India: Higher GST pleases iron ore miners but reduces mills' cash flow

The goods and services tax (GST) on ores and concentrates of metals such as iron, copper, aluminum, zinc and few others has been increased from the existing 5% to 18%. Th...

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20 Sep 2021, 09:19 IST
India: Higher GST pleases iron ore miners but reduces mills' cash flow

The goods and services tax (GST) on ores and concentrates of metals such as iron, copper, aluminum, zinc and few others has been increased from the existing 5% to 18%. The decision was taken at the GST Council's 45th meeting, held in Lucknow on 17 Sept'21, under the chairmanship of Finance and Corporate Affairs Minister Nirmala Sitharaman.

Speaking to miners and steel mills on the impact of the higher GST, SteelMint received mixed responses.

Miners happy

Miners seemed to be happy with the decision They said, under the existing dispensation, while they could charge only 5% from their buyers as GST, their actual outgo to the government, which includes DMF, royalty and NMET, amounted to 18%. "DMF, royalty and NMET collectively amounted to around 18%, so this proposal for 18% GST will help the miners to set off full credit," a mining industry official said.

Steel mills uncertain

However, steel mills are still weighing the impact of the new proposal. An official from a leading primary mill said, there would be no impact on steel costing but cash flow requirement would get reduced. "There would be nil impact on steel costing. Only the cash flow requirement gets reduced," said the official.

Another source, corroborating, said mills' costing would increase because, when they procured iron ore, they paid 5% as GST under the existing tax structure. But, when they sold finished steel they paid GST at the rate of 18%. "Thus, mills had this 13% capital or cash flow in hand till they sold the finished steel. Now, that slight advantage will be lost," said the source.

SteelMint's assessment is that mills will be impacted by the higher 18% GST imposition. Mills were able to keep some capital with them for a few days till the time they were able to sell the finished inventory.

Moreover, during a period of sluggish domestic demand, when inventory offtake slows down, mills would have procured iron ore paying the steeper 18% GST. During such a period, outgo of the 18% on iron ore would be steep if inventories pile up and they are not able to sell quickly enough.

India's iron ore output

India's iron ore production in CY'21 (till Jul'21) was at 153 million tonnes (mn t) in which the share of Odisha was at a whopping 90 mn t. In CY'20, India's output was at around 200 mn t and in CY'19, at 235 mn t.

Way ahead?

On the face of it, miners seem to be okay with the government's decision. But it may affect the liquidity position of buyers short term as the refund takes some time. However, with prices of iron ore reducing drastically, the load of GST may be set off marginally.

SteelMint Trade Sheet- MB 20 Sep 2021

 

20 Sep 2021, 09:19 IST

 

 

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