India’s corrugated box manufacturing sector is facing significant challenges due to recent revisions in the Goods and Services Tax (GST) structure.

The Eastern India Corrugated Box Manufacturers Association has raised concerns that the new GST rates have created an inverted duty structure, placing over 20,000 micro, small, and medium enterprises (MSMEs) at risk of closure.

Inverted GST duty structure disrupts industry balance

The recent GST revisions have reduced the tax rate on corrugated paperboard boxes from 12% to 5%. However, the tax rates on key raw materials—kraft paper and board—have been increased from 12% to 18%.

This discrepancy has led to a 13% net burden on manufacturers, according to the Eastern India Corrugated Box Manufacturers Association. This inverted duty structure is causing financial strain on MSMEs in the packaging sector.

Financial strain on small manufacturers

The association highlights that the inverted duty structure results in blocked working capital due to the accumulation of unrefundable input tax credits on services such as labour, job work, rent, repairs, and freight.

This situation is expected to inflate costs by 18% on contract labour, job work, rent, and repairs, and by 5% on freight.

Consequently, manufacturers may be compelled to increase box prices by 5–7%, potentially impacting consumers.

Calls for GST rate parity to support industry

The association has appealed to the government to restore GST rate parity between corrugated boxes and their raw materials.

They argue that such a measure would not affect government revenue, as both inward and outward supplies in the sector are business-to-business transactions where input tax credit is availed at every stage.

Addressing this issue is seen as crucial for maintaining the viability of MSMEs and supporting essential supply chains nationwide.

The corrugated box industry employs over one million people and processes nearly seven million tonnes of kraft paper annually. The sector plays a vital role in packaging for various industries, including e-commerce, pharmaceuticals, and consumer goods.

The current GST rate disparity threatens the sustainability of this significant segment of India's manufacturing sector.