The furniture industry is considered to be dominated by an unorganized player, SSI, Small workshops, which either do not pay taxes or fall under the boundaries of excise duty. They end up paying just VAT, which is between 12.5 and 14.5 percent. These forms of company will also have a major impact on their ex-factory costs as they will have to sell up to 28 percent of GST. Although they will receive GST credit on their raw material supply, the net effect on their prices (gain of GST) will be 7% higher.
On 18 May 2017, a meeting was held at which the GST Council announced a revised tax system for all goods and services subject to GST, essentially repealing the current VAT on goods and services. In this post, you can read about the GST prices for different wood furniture and supplies and how the GST regime is better (or worse than the VAT regime). Here we will be discussing the Impact of GST Rate on Furniture Manufacturers
The GST prices in India shall be decided by the GST Board from time to time. GST premiums will be charged at five points, namely none, 5 percent, 12 percent, 18 percent, and 28 percent. With the GST to be introduced in India as of 1 July 2017, the GST rate on all goods and services has been notified. In this article, we look at the GST rate for timber, wood furniture, and wood goods.
GST rate for wood furniture supplies
In order to grasp the price of wood furniture, one should first know the GST cost for the supply of wood products.
- A rate of 12 percent of GST is placed on items such as wooden plates, instruments, crates, and wood used to make umbrellas, scrolling sticks and tool handles, or anything similar.
- For wood pulp and bamboo pulp, a 12 percent GST rate is levied.
- Residual lees from the manufacture of wood pulp, whether condensed or not, de-sugared or chemically treated, such as lignin sulphonates, but excluding high oils, are subject to a rate of 18 percent GST.
- The rate of 18 percent GST is levied on wood tar, vegetable pitch, wood naphtha, brass pitch, wood tar oils and similar preparations dependent on rosin, resin acids, or vegetable pitch and wood Creosote is 18 percent.
- Both wooden furniture and wooden decorations used as tableware or kitchenware (in addition to those reported at 28 percent under the GST) are subject to a rate of 12 GST.
- A rate of 28 percent of GST is levied on fiber-wood, plywood, laminated wood, and other wood-like or wood-like materials.
- A rate of 5% GST is levied on wood in chips, sawdust, or wood waste.
- A tax of 28 percent of GST is charged on cane furniture.
- The GST rate for firewood or wood charcoal is excluded.
Instead of the former VAT of 12.5 percent, the final products produced by furniture producers are now charged at a rate of 12 percent on GST. Plywood is used primarily by producers of wood furniture goods. A big rise of 5-6 percent to 28 percent under GST was made within the price of plywood from the earlier VAT. This has resulted in a rise in the price of furniture made of wood (timber). However, furniture manufacturers can now claim the ITC (Input Tax Credit) on the tax paid for the purchase of plywood.
The nearby furniture store manufactures wooden pieces such as tables, seats, couch sets, cupboards, dining tables, beds, etc.
The customer buys a sofa package from the Rs. 20,000 store. The material, in this case, plywood, was used to make the sofa package, which cost the furniture maker Rs. 10,000.
Now when we compare the tax liability of the wooden object (sofa set) under both VAT and GST, we get the following results:
Tax liability under VAT
Tax levied on the sofa set (finished good) = Rs. 2,500 (i.e. 12.5% of 20,000)
ITC available on the purchase of plywood (material) = Rs. 600 (6% of 10,000)
Therefore, net tax liability = Rs. 1,900 (2,500 – 600)
Tax liability under GST
Tax levied on the sofa set (finished good) = Rs. 2,400 (i.e. 12% of 20,000)
ITC available on the purchase of plywood = Rs. 2,800 (28% of 10,000)
Therefore, net tax liability = Rs. 400 (2,800 – 2,400)
The furniture manufacturer can dispose of its tax liability for the entire amount of Rs. 2,400 under GST through claiming the ITC available on the purchase of plywood (Rs. 2,800).
Iron or Steel Furniture GST Rate
The production of iron and steel furniture was also expensive under the GST. The previous average VAT on iron or steel furniture was 12.5 percent, while under GST, any furniture part other than wood furniture would be taxed at a rate of 28 percent.
In comparison to the previous 5 percent VAT, GST is levied on iron and steel at a rate of 18 percent, regardless of steel characteristics. Manufacturers of iron and steel furniture shall be entitled to state the ITC duty paid by them on imports.
The customer purchased an almirah of steel for Rs. 50,000 from a furniture shop. There is a wide part of the furniture store, where only iron and steel furniture is made by the shop. The furniture producer has purchased a steel worth of Rs. 30,000 for the steel production of the almirah. Now when we equate the tax liability of the steel item (almirah) to both VAT and GST, we get the following results:
Tax liability under VAT
Tax levied on the almirah (finished good) = Rs. 6,250 (i.e. 12.5% of 50,000)
ITC available on the purchase of steel (material) = Rs. 1,500 (5% of 30,000)
Therefore, net tax liability = Rs. 4,750 (6,250 – 1,500)
Tax liability under GST
Tax levied on the almirah (finished good) = Rs. 14,000 (i.e. 28% of 50,000)
ITC available on the purchase of steel (material) = Rs. 5,400 (18% of 30,000)
Therefore, net tax liability = Rs. 8,600 (14,000 – 5,400)
The GST tax rate on furniture, whether wood, iron, or steel, is much higher relative to the earlier rates of what was paid as VAT. As a result, there could be a rise in the tax liability of iron or steel producers under the GST. GST is supposed to be more worthwhile for manufacturers of wood furniture, but not so much for manufacturers of iron or steel furniture.