Shift from Gross to Net GST calculation reduces incentive
Nishikant Khajuria
JAMMU, Aug 31: The proposed amendment in GST Linked Incentive from Gross GST to Net GST and Capping has triggered a panic wave among the new Industrial units in Jammu and Kashmir, which fear their closure owing to probable coming down of value of incentive drastically even to zero in some cases.
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The proposed shift from Gross to Net GST calculation is likely to have a profound impact on industries in J&K Union Territory, particularly those operating under Inverted Duty Structure.
These industries, such as pharmaceuticals, could potentially lose the entire incentive under the proposed change, leading to severe cash flow issues and jeopardizing the overall viability of their operations.
Pertinent to mention that the New Central Sector Scheme (CSS) for Industrial Development of Jammu & Kashmir, notified on February 19, 2021, was introduced to boost industrial growth in the region. Among the various incentives provided under the scheme, the GSTLI, which offers a reimbursement of GST paid by eligible new units, was particularly significant for potential investors. The scheme was intended to cover up to 300 percent of the eligible value of investment in plant and machinery or construction of buildings and other durable physical assets over a period of 10 years.
However, recent meeting of the Steering Committee, which monitors smooth implementation of the GSTLI and issues detailed guidelines on eligibility under service sector, discussed the need to define an upper limit for the eligible investment under this component to prevent potential financial implications.
The meet observed that unlike other components of the scheme, there is no defined upper limit for the eligible value of plant and machinery under the GSTLI component. The Steering Committee raised concerns over the lack of capping, particularly for the units with investments exceeding Rs 50 crores.
On the basis of these observations, the Steering Committee proposed to alter the basis of the GSTLI from Gross GST (total GST paid including input tax credit) to Net GST (GST paid through cash only).
This proposed amendment in the notified scheme by the Steering Committee is likely to drastically reduce the incentive value for many industries, particularly those operating under an inverted duty structure, such as the pharmaceutical industry. These industries are purchasing at higher rate of tax and selling at lower rate of tax, resulting no payment of GST through cash ledger.
For instance, a pharmaceutical unit with an investment of Rs 45 crores in plant and machinery that was initially eligible for Rs 135 crores in GSTLI over 10 years, might now receive nothing under the new proposed system, leading to loss of Rs 125.40 crores and severe cash flow issues thus jeopardizing the overall viability of its operations.
As industries in J&K already face unique challenges, such as higher overhead costs due to logistical challenges, lack of skilled manpower, and higher costs of allied services, the potential reduction in incentives could make it even more difficult for businesses to operate sustainably in the region.
When contacted, Commissioner Secretary, Industries & Commerce, J&K Government, S Vikramjit Singh told the Excelsior that no final decision has been taken so far over capping the incentive committed in the scheme as the matter is pending before the Apex Committee, which is unlikely to meet before conclusion of the ongoing process for Assembly elections.
As the matter awaits further discussion in the next Apex Committee meeting, industries in J&K are closely monitoring the situation, hopeful for a resolution that supports their continued growth and contribution to the local economy.
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