MSMEs in Coimbatore demand reduction in GST

The Micro, Small, and Medium-scale Enterprises (MSMEs) in the engineering sector have demanded reduction of Goods and Services Tax (GST) to 5 %.

J. James, co-ordinator of the Federation of Coimbatore Industrial Associations that has over 20 associations as its members, said the entire engineering industry should be brought under 5% GST from the existing 18% to give a boost to the sector. The recent changes in GST rates have increased the rate for job works to 18% from 12%.

“The micro units cannot take input tax credit as the raw materials are supplied by the larger industries that give the job work and the micro unit gets only the labour charges. We get payment for the jobs after three months or so. We don’t buy tools and machines or raw material every month. Hence, the micro units end up paying 18% duty. This issue can be resolved if the entire sector is brought under 5%.

“Further, Coimbatore is a centre for manufacture of castings. With the Trump tariff, the foundries are hit as there is a slow down in orders for castings. If the sector should be revived, the domestic market should get a boost. That will come with lower GST,” he added.

In a memorandum to Union Finance Minister Nirmala Sitharaman, the Coimbatore District Small Industries Association (CODISSIA) said that while some job workers are benefiting from a reduced 5% tax rate, those under the ‘residual entry’ category face an increased rate from 12% to 18%, resulting in a heavier burden despite input tax credit eligibility.

Micro and small receive goods from a principal manufacturer, carry out processes such as machining, bending, welding, cutting, or surface preparation, and return the goods after job work to the principal. It is only an intermediary process in the manufacturing cycle.

The 18% rate will result in working capital being tied up for MSME job- workers, who generally operate with 90-120 day working capital cycles.

Under the previous Central Excise regime, job works were exempted from duty. Lowering the tax rate from 18% to 5% may not reduce government revenue, since GST is paid by the principal goods manufacturer, it said.