For small and micro industries that do job work in the engineering sector, the Goods and Services Tax regime has thrown open several issues of concern.
Be it automobiles, agriculture tools, pumpsets or any other engineering industry, outsourcing of jobs to micro and small-scale enterprises is high. While original equipment manufacturers and prime suppliers have adopted the new tax system, there are issues for the micro units, say industry sources here.
According to Anil Bhardwaj, secretary general of Federation of Indian Micro and Small and Medium Enterprises (FISME), “Outsourcing is almost a norm in the engineering sector as the job work units specialise in specific activity, such as casting, machining, or painting. Each unit would do job works for many bigger industries.” The micro, small and medium-scale enterprises (MSMEs) that do job work were till now moving goods with just documents. Now, they need to pay 18% tax, if the annual turnover is more than ₹20 lakh. It would block their capital as they would have to wait for the payment from the industries that outsource the job.”
‘Jobs under threat’
In case the micro or small-scale unit is unable to comply with the new tax system or is not covered under the GST and it affects the supply chain, the outsourcing industry would create in-house capacity and might not give jobs to the MSMEs.
V. Sundaram, president of Coimbatore District Small Industries’ Association, explained that a micro unit would have invested in a few machines and would manufacture components. When the demand is low, the manufacturer would use the machinery to do job work.
While the entity would be covered under the composition scheme for the manufacturing activity (2% composition tax for units with less than ₹75 lakh turnover), this option is not available for job work, as it is considered a service.
A group of micro unit owners from Coimbatore met the Finance Minister recently and sought exemption from GST for industries with less than ₹20 lakh turnover and do job work.
Job work should be covered under the composition scheme, Mr. Sundaram said.