The state government, in an order issued on January 2, has done away with all the differential sales tax structure on cement of 16% and 24% with 1% and 5% surcharge, and notified a uniform sales tax of 14% flat.
The new rate is on par with tax rates prevailing in neighbouring states. The industry has been clamouring for the removal of the dual tax system for the past two years and could not have hoped for a better New Year gift.
Says Krishna Kumar, Head (Research), Sundaram Mutual Fund, "the GO will not only give an elbow room for the companies to fix the price of cement more freely but will also enable them save over Rs 200 per tonne".
"The companies will see a positive impact of anywhere between 8% and 10% on both topline and bottomline. For every one million tonne sold, they will make an additional gain of Rs 20 crore," he said, adding "it is significant to note that the GO came at a time when south is witnessing a boom in cement sector, with an annual growth of 20% as compared to national average of 9%.
During the fiscal, South is also instrumental in driving the industry's overall growth in India".
According to industry sources here, "it is a major relief to cement companies, which have been demanding scrapping of dual sales tax structure apart from bringing down the tax on par with that of other states," sources said.
"We see a direct impact of 3% turnover tax on the profits. In addition to that 4% to 5% more on profit from selling at an uniform sales tax for all varieties at a price determined by the companies respectively," sources added.
Given the increased demand in south, which is expected to continue for the next few years due to infrastructure and real estate boom, particularly in southern parts of the country, the demand will outstrip the supply, the sources maintained.