Chennai: The Goods and Services Tax (GST) is likely to hit makers of tractors and ultimately farmers who buy them. The inputs and accessories of a tractor now attract a total tax of 17.5% now (central value added tax (Cenvat) of 12.5% plus state VAT of 5%). About 70% of the inputs that go into making a tractor are procured locally and the rest from outside the state of manufacture/assembly. Apart from Cenvat, a 2% central sales tax is levied on inter-state purchases resulting in an effective tax of about 13.7%.
With inputs and accessories of tractors being brought in the 28% slab under GST, the effective tax would jump to 19.6% (tax for about 70% of the inputs). Incidentally, tractors (except road tractors for semi-trailers with engine capacity of more than 1800 cc) have been brought under the 12% tax slab in GST. This means that tractors would be taxed at 12% while the gearbox, hydraulic pumps, metal parts and forgings in the same would attract 28% levy.
The catch is that manufacturers can charge only 12% out of the effective tax of 19.6% for inputs, parts and accessories to the customer and claim the rest only as a refund from the government. Since the nearly 6% differential gets locked up and refunds take time, small and medium manufacturers of inputs and accessories would be severely affected, industry officials said. For example, a manufacturer using material worth Rs 7 crore would have to wait for a refund of about Rs 40 lakh. “Our profit margins, which are only 8%-9%, will be completely wiped out,” a senior industry official said.
Worse still, manufacturers will not be able to pass on the hike to customers as inputs and accessories for tractors come under the exempted list where only tax refunds are allowed.
Tractors were fully exempted from excise duty in the 2004-05 union budget of the first UPA government.
[Source”timesofindia”]
