Impact of GST on Construction Equipment Segment

The Goods & Services Tax (GST), that came into force on July 1, 2017 after 40 long years of discussions, has revolutionised the tax system of the country. GST driven by the principle of one nation one tax is expected to unify the country economically. It has clearly affected various sectors of the economy and the earthmoving and construction equipment sector is not an odd one out.

If we go by the numbers, then the GST rate for earthmoving and construction equipment sector is slated to be 28 per cent. In fact, more than 80 per cent of the equipment now fall in the 28 per cent tax bracket. The list of such equipment majorly include wheeled loaders, soil compactors, concrete mixers, road equipment, crushers and excavators. Even off-road equipment such as mining tippers, excavators, dozers, graders, shovels and road roalers; on-road equipment including trucks, commercial vehicles, low-bed trailers, semi-bed trailers, trailers and lifting equipment such as cranes, forklifts, self loading and unloading equipment, lifts, escalators and conveyors will have 28 per cent GST levied on them.

Particularly, the majority of equipment that are responsible to contribute to the overall sales of construction equipment in India such as backhoe loaders and excavators are supposed to be taxed at 28 per cent. Well, though, the tax rate has increased, yet GST can help the sector greatly by improving its efficiency and reducing the overall logistics cost.

Positive impact of GST on construction equipment sector

One may think that the tax burden has increased with the GST but it has essentially brought several positive changes and consequences for the sector. Here is the list of advantages that GST will offer to the segment…

1. Untill GST was introduced, all heavy equipment used to have a different tax structure in different states. While some states used to levy entry taxes,Octroi etc., some demanded entry forms and some didn’t. This always led to huge confusion in equipment selling and moving it from state to the other. GST will put an end to this.

2. Several equipment manufacturing companies will be able to save a lot of logistics and distribution cost as the multiple sales depot costs will be eliminated. The supplier E-way bills will result in removal of inter-state check posts.

3. Earlier, when the equipment manufacturers used to sell the machines across the state borders, they always had to collect the C-Form and submit it to the government. In cases, they were not able to collect the form, they had to suffer loss of capital and ended up paying the differential taxes. With the impletmentation of GST, such practices will cease to exist, thus, bringing more efficiency in operations.

4. Previously, those equipment manufacturers who were engaged in domestic trade generally did not benefit from VAT. Now, they will definitely benefit from this new tax reform.

5. Availability of input tax credit with benefit the sector.

6. Equipment leasing activities which were previously plagued by both sales tax and service tax being imposed on the same transaction will also get a boost.

7. The ease of doing construction business will increase gradually.

Thus, overall, a better taxation system with a single tax reform can definitely bring in more transparency and efficieny in the segment. It can greatly help in unifying the segment. Thus the impact of GST on construction equipment sector will be a positive one in the long run.

Primarily, the equipment manufacturers would be able to save on their logistics cost. Further, earlier, they had to pay several taxes like excise duty, customs duty etc. GST will replace all these taxes with a single tax and will ensure smooth flow of credit. Since, the flow of funds will be improved, it will directly boost the growth of the construction equipment industry. GST is also expected to decrease the cost of construction materials by approximately 5 per cent.

Further, the practice of sourcing of material from unregistered dealers (those not registered for Central Sales Tax) will also be eradicated.

Well, definitely the equipment manufacturers are set to benefit from GST but is it the right time for the buyers to make investments in construction equipment? Well, yes! With the implementation of GST, consumers can make a sure investment by keeping aside all the worries for several hidden layers of taxes. GST will surely lead to avoidance of the multiple taxation system which was earlier levied on the equipment.

Thus, GST is bound to represent a win-win situation for the both the construction equipment sellers as well as the buyers.