India hikes iron ore GST to 18pc to streamline duty

India has raised the goods and services tax (GST) for iron ore from 5pc to 18pc to amend the inverted duty structure in the industry, but the government has not finalised a date on the implementation.

The country's GST council in its 45th meeting increased the GST on ores and concentrates of metals such as iron, copper, aluminum, zinc and few others to 18pc from 5pc.

For ore and specified metals, due to the inverted duty structure anomalies on services, a correction will help the industry, India's Finance minister Nirmala Sitharaman said in the post GST meeting address last week, adding "but we have not decided on a date on that".

An inverted duty structure occurs when tax on inputs exceeds that of the output. Iron ore miners pay 18pc GST for supply of services, while the GST on processed iron ore sale is 5pc. The GST on steel products is 18pc.

The GST hike will increase steel companies' working capital requirement initially, a senior official from a steel company said, adding that steel mills will have to pay an 18pc GST upfront to buy the ore, from the current 5pc. There will be a gap in the realisation given the time difference when procuring the ore and when the sale was made.

"Major advantage will be to the people those who have captive mines in one state and they were taking material to different states," JSPL's managing director VR Sharma told Argus. He also said thatwhile the companies were paying 18pc GST for the mining operations, they were only able to take input credit of 5pc after the sale, these companies will now be able to take the full 18pc credit in their respective states.

Market experts said the tax increase will not lift steel prices and is a welcome move as this will streamline the process.

The higher GST is positive for mining companies as they currently incur 18pc GST on services associated with mining operations but ore is sold to steel mills at 5pc GST, Ritabrata Ghosh, assistant vice-president of Icra Research said. "Steel prices will not have an impact, this step is just to streamline the process."

Amendments to India's Mines and Minerals Development and Regulation Act 2021 earlier this year allowed existing captive mines to sell up to 50pc of their output in the open market.

By Sumita Layek