Over 20,000 MSMEs in Corrugated Box Industry at Risk Due to GST Rate Disparity
The Indian corrugated box manufacturing industry is facing a severe crisis due to recent GST changes. Over 20,000 MSMEs are at risk of closure. The GST on corrugated boxes was reduced to 5%, while raw materials' GST increased to 18%, creating a 13% tax burden. This has led to working capital blockage, higher compliance costs, and increased operational expenses. The industry, which employs over a million people, is appealing to the government to restore GST rate parity between corrugated boxes and paper boards to prevent widespread closures.
*this image is generated using AI for illustrative purposes only.
The corrugated box manufacturing industry in India is facing a severe crisis, with thousands of businesses at risk of closure due to recent changes in the Goods and Services Tax (GST) structure. The Eastern India Corrugated Box Manufacturers Association has raised alarm bells, warning that more than 20,000 Micro, Small, and Medium Enterprises (MSMEs) in the corrugated box packaging segment are teetering on the brink of shutdown.
GST Inversion Creates Financial Strain
The root of the problem lies in what industry experts call an "inverted GST duty structure." This anomaly has emerged following recent tax adjustments:
- GST on corrugated paperboard boxes: Reduced from 12% to 5%
- GST on raw materials (kraft paper and board): Increased from 12% to 18%
This disparity has created a substantial 13% tax burden on manufacturers, leading to a cascade of financial challenges.
Impact on the Industry
The association highlights several critical issues arising from this tax structure:
- Working Capital Blockage: Manufacturers are experiencing significant cash flow problems.
- Higher Compliance Costs: The complex tax structure is increasing operational expenses.
- Inflated Operational Costs:
- 18% increase in costs for contract labour and job work
- 5% rise in freight costs
Industry Significance
The corrugated box manufacturing sector plays a crucial role in India's economy:
- Employs over one million people
- Converts approximately seven million tonnes of kraft paper annually
Ripple Effects
The financial strain on manufacturers is expected to have wider implications:
- Manufacturers anticipate a 5-7% increase in box costs for customers
- This could potentially affect various industries relying on corrugated packaging
Industry's Appeal
In light of these challenges, the corrugated box manufacturing industry has made a plea to the government:
- Restore GST rate parity between corrugated boxes and paper boards
- This step is deemed crucial for maintaining the industry's viability and preventing widespread closures
The situation remains critical as the industry awaits government response to their concerns. The resolution of this GST disparity could be pivotal in determining the future of thousands of MSMEs in this vital manufacturing sector.
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