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.
The Central Board of Indirect Taxes and Customs (CBIC) on Tuesday issued a set of FAQs clarifying ITC treatment for sectors such as insurance, cement, hotels, and wellness services. However, pharma, textiles, fertilizers, confectionery sectors are still waiting for more guidance.
Dharmesh Dattani, CFO, Vishal Fabrics Limited, noted: “On the issue of garments above ₹2,500 attracting 18% GST, suggestions have been made to either lower the rate or revise the edge to ensure affordability for middle-class consumers while supporting sectoral growth.”
With the festival season approaching, demand is expected to rise. Companies are gearing to scale up their production but also face a sharper need for working capital. Some larger players are stepping in to support smaller businesses, yet the industry is pressing for systemic solutions such as quicker refunds and uniform slabs across raw materials and finished goods.
“FAI (Fertiliser Association of India) has been engaging with the government to seek quicker refund procedures. We have also proposed that critical agri-inputs be subjected to a uniform slab to prevent ITC stacking,” said Abhishek Wadekar, Founder Chairman, Tradelink International, a fertilizer company.
Industry representatives caution that without timely clarifications and relief measures, the immediate pain of cash-flow pressures may blunt the consumption boost that the GST reforms are expected to deliver.
