From pharma to confectionery sectors, companies raise concerns over input tax credits

NEW DELHI: With the September 22 deadline for rolling out goods and services tax (GST) reforms getting closer, several sectors — pharmaceuticals, fertilizers, textiles, and confectionery — continue to raise concerns over the likely build-up of input tax credits (ITC). Industry players say the rate rationalisation has created inverted duty structures, thereby squeezing working capital, making it particularly challenging for smaller firms.

“The recent reforms on GST have caused an inverted duty structure, where the GST on finished pharmaceutical formulations drops to 5% and the tax on Active Pharmaceutical Ingredients (APIs) sits comfortably at 18%. In such cases, the accumulation of unutilized ITC becomes quite pronounced, especially for companies that are importers of APIs, because the tax on inputs is greater than the tax on outputs,” said Jeevan Kasara, Director and CEO, Steris Healthcare.

While the accumulation impact will be there, the bigger players will be able to liquidate sooner. But the inability to immediately offset such credits forces the small players to rely on external financing, thereby creating further cash-flow constraints, argue the companies.

Confectionery, textile exporters and fertilizer producers have echoed similar worries.

“A smoother mechanism for ITC refunds or faster adjustment windows would help. Many small/mid-sized businesses cannot afford long cash-flow lockups. Suggest government to streamline refund timelines and create a sector-specific working capital relief policy during the transition,” said Nikki Thakker, founder and CEO, Éntisi Chocolatier.