Impact of GST Rate on Furniture Manufacturers

The tax rate on certain goods and services under GST was declared by the GST council in the meeting held on 18th May 2017. We will be doing a complete analysis of the changes in the tax rate for different kind of furniture manufacturers in this article. There are a substantial amount of changes in the tax rate from the current VAT rate being charged.

Manufacturers of Wooden Furniture

In order to understand the costing for wooden furniture, an understanding of changes in the tax rate on wood is essential.

Particulars	GST Rate	VAT Rate
Articles like wooden boxes, drums, crates. The wood used in making an umbrella, walking sticks and tool handles or anything similar	12%	An average 4-5%
Wood pulp, bamboo pulp	12%	An average 4-5%
Residual lyes from the manufacture of wood pulp, whether or not concentrated, de-sugared. Or chemically treated, including lignin sulphonates, but excluding tall oil	18%	An average 4-5%
Wood tar; vegetable pitch; wood naphtha; brewers’ pitch; wood tar oils and similar preparations based on resin, resin acids or on a vegetable pitch and wood creosote	18%	An average 4-5%
Any wooden furniture and wooden decorates used as tableware or kitchenware (except that notified @28 % under GST)	12%	An average 12.5%
Fibrewood, plywood, laminated wood and other materials having an appearance of wood or being woody in nature	28%	Others –  An average 12.5%
Firewood or wood charcoal	Exempt	Exempt
Wood in chips, sawdust or waste of wood	5%	An average 4-5%
Cane furniture	28%	An average 4-5%

The final goods produced by the manufacturer of wooden furniture will be taxed at the rate of 12% under GST instead of the current average VAT rate of 12.5%. Plywood is used mainly in the manufacture of most of the wooden furniture articles. There has been a significant increase in the rate of plywood from the current average VAT rate of 5-6% to 28% under GST. Due to the increase in the tax rate on plywood, there are significant chances of increase in the cost of wooden furniture. Although the manufacturer can claim the ITC on the tax paid for purchasing plywood in order to make the furniture.

For Example:

XYZ furniture produces wooden articles like a sofa, chair, cupboard, and tables. G purchased a table from XYZ for Rs 20,000.  XYZ had purchased plywood for Rs 10,000 for making the table.

Tax liability under VAT

Tax on the table (final product)	Rs 2,500 (12.5% of 20,000)
ITC available on purchasing plywood	Rs 600 (6% of 10,000)
Net tax liability	Rs 1,900 (2500 – 600)

Tax liability under GST

Tax on the table (final product)	Rs 2,400 (12% of 20,000)
ITC available on purchasing plywood	Rs 2,800 (28% of 10,000)
Net tax liability	Rs 0 (2,400 – 2,400)

XYZ can dispose its tax liability for the whole amount of Rs 2400 under GST by using the ITC available on the purchase of plywood (2,800).

Manufacturer of Iron or Steel Furniture

Iron or steel furniture are also expected to get expensive under GST. Current average VAT rate applicable on iron or steel furniture is 12.5% whereas under GST except for wooden furniture, any other articles of furniture would be charged tax at the rate of 28%.

GST will be charged on iron and steel@18% irrespective of the characteristic of the iron or steel in comparison with the average VAT rate of 5%. ITC will be available to the manufacturers @18% of the iron or steel purchased under GST.

For Example:

X purchased a steel almirah for Rs 50,000 from ABC furniture. ABC furniture has a major section producing only iron and steel furniture. ABC had purchased and used steel worth 30,000 for making the furniture.

Tax liability under VAT

Tax on the table (final product)	Rs 6,250 (12.5% of 50,000)
ITC available on purchasing steel	Rs 1,500 (5% of 30,000)
Net tax liability	Rs 4,750 (6,250 – 1,500)

Tax liability under GST

Tax on the table (final product)	Rs 14,000 (28% of 50,000)
ITC available on purchasing steel	Rs 5,400 (18% of 30,000)
Net tax liability	Rs 8,600 (14,000 – 5,400)

Impact of GST on the Furniture Industry

It is clear from the above table and examples, that the tax rate under GST on wood, furniture, iron or steel is higher than the current applicable VAT rates.

Hence, there will be an increase in the tax liability of iron or steel manufacturer under GST. GST is more beneficial for the wooden furniture manufacturers than the iron or steel furniture manufacturers.