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Brick makers demand reduction in GST rates

By Rishabh Chamoli | 2023-01-28

In what is seen as a massive jolt to the construction industry, the brick kiln owners are on a complete shutdown for almost four months now across India. The move is likely to impact the ongoing residential and commercial projects across the country. Brick makers have recently urged the government to bring down the GST rates.

Citing a lack of demand and high input costs, the brick makers in the country have urged the government to bring down the Goods and Service Tax (GST) rate on bricks from six percent to the previous one percent. The new GST rate came into effect on April 1, 2022. Before that, one percent GST was levied on brick manufacturers under the composition scheme.

The case overview
Currently, kiln owners all over the country are on a nationwide strike for almost four months now. There are roughly around 1.5 lakh brick kilns in India. Nearly three crore workers are impacted because of the shutdown. Omvir Singh Bhati, General Secretary of the All India Brick and Tile Manufacturers Federation (AIBTMF), shared, We are facing a tough time. Our kilns all over the country are shut as we are finding it difficult to do business in absence of demand and high input cost. We demand the government to reduce back the GST.

Why was the GST increased?
Earlier, only one percent GST was levied on businesses with turnover up to Rs 1.5 crore. But then, the government decided to increase it last year in a GST Council Meeting, taking the GST rate to six percent only for the brick industry. Coal, which is one of the raw materials for bricks, also attracts a high GST rate of 12 percent, a substantial increase from five percent previously. Such factors have severely impacted the brick manufacturers.

Factors impacting the rising brick price
As per Ramesh Mohie, President, Punjab Brick Kiln Association, Despite the availability of coal within India, the Government has been promoting imported coal. This is being sold at an inflated price of Rs 30,000 per tonne, as opposed to the actual price of Rs 4,000 per tonne. Further, the hike in GST from April 1, 2022, has impacted brick production extensively.

Reports suggest that prior to April 2022, the GST per 1000 bricks was around Rs 350, which now stands at roughly Rs 850. As a result, the price of 1000 bricks is around Rs 7,000 and above.

How has construction material cost risen in the recent past?
According to the Maharashtra Chamber of Housing Industry (MCHI) and the Confederation of Real Estate Developers Associations of India (CREDAI), the input costs associated with real estate projects have surged by a minimum of 40 percent, YoY. Of these, the price of steel has witnessed the sharpest rise at about 60 percent, followed by an approximately 40 percent hike in the price of conduit pipes and copper. Cement prices have also gone up by about 25 percent, YoY.

The price rise can be attributed to the global geo political situation, courtesy of the Ukraine-Russia crisis, which has disrupted the supply chain. As a result, there has been a shortfall of commodities, placing inflationary pressures on the cost of materials.

While the brick kiln owners have stated their demands, the ban may potentially lead to repercussions for the end buyers as the move may lead to higher property values. The Centres role in curtailing the rising prices may provide the necessary support to the real estate sector and its allied industries, which may improve the situation.