Punjab steel cluster sanguine over VAT dip

Badal approved the new proposed VAT regime on iron and steel industry aiming to enable the industry to compete with neighbouring states

The steel cluster of Punjab has a reason to smile as the state government has decided to reduce value-added tax (VAT), a long-standing demand of the small and medium steel mills.

In a meeting with the representatives of furnaces and iron & steel rolling mills, re-rolling mills and pipe makers, Deputy Chief Minister Sukhbir Singh Badal gave a green signal for reducing VAT to 2.5 per cent from 4.95 per cent.

Around 700 small and medium steel mills in Mandi Gobindgarh and Ludhiana are likely to benefit from the lower VAT.

This will help the iron & steel industry in the state compete and raise revenues for them.

Mills in the state had demanded VAT on scrap (melting and rolling), ingots/billets/blooms or other semi-finished goods, finished goods for sale outside the state be reduced. On the demand of the industry, the implementation of advance tax has also been cleared by the deputy CM on all iron and steel products, including furnishing goods.

To eliminate the ill practices of generation of bogus ITC (input tax credit), the government has decided to restrict ITC to at most two stages. By giving a big relief to the small steel rolling mills and furnace units, implementation of VAT has been attached to the consumption of electricity units. After the implementation of the new system, there should be a minimum commitment of production of one million tonnes (mt) of finished items with 250 units of consumption of electricity, whereas furnace units will require a minimum commitment of one mt of ingot production with 750 units of electricity.

The deputy said this decision would eliminate taxevasion, besides increasing production by encouraging flow of scrap and raw material into the state. With reduced tax, there would be increased liquidity with the manufacturer apart from the benefit.

According to sources in the state excise and taxation department, total tax collection from the iron & steel industry was Rs 1,091 crore in the financial year 2013, of which Rs 403 crore was refunded, resulting in a net tax collection of Rs 688 crore.  Badal said initially the new VAT regime would cause a revenue loss of Rs 185 crore to the state exchequer but later it would generate more revenue as industry production increases.

Badal also announced the state Cabinet would approve the new VAT regime for iron & steel industry in its meeting to be held in first week of January. The restructured VAT regime would be notified and implemented from February 1.

According to Mohinder Gupta, a steel mill owner and a member of the delegation that met the deputy chief minister, hailed the new tax structure that would help the languishing steel cluster in the state.