The year-end news brings a mixed bag for Corporate India, with a prominent theme being economic headwinds. As we approach 2025, the signals are clear: businesses must brace for a double whammy of subdued commodity prices and significant Goods and Services Tax (GST) changes.

Gloomy Commodity Outlook

The global economic outlook for 2025 points towards continued softness in commodity prices. With China’s growth moderating and global trade facing increased barriers, the demand for raw materials is expected to weaken. This creates a challenging scenario for Indian businesses, despite India being a net commodity importer. The interconnected global economy means that a commodity price slump will have ripple effects across various sectors here.

Steel Sector Under Pressure

Consider the steel industry. Global steel producers, facing reduced demand elsewhere, are increasingly targeting the Indian market. This influx is already putting downward pressure on domestic steel prices. Ratings agencies predict a considerable fall in benchmark hot-rolled coil prices this fiscal year. Lower prices will directly impact the earnings of steel manufacturers, overshadowing any relief from reduced raw material costs. The sector is already grappling with capacity expansions and capital expenditure, and this price pressure could worsen leverage ratios, potentially reaching five-year highs for primary steel makers as per CRISIL.

GST Overhaul in the Works

Adding to the complexity, the GST framework is undergoing significant scrutiny. The upcoming 55th GST Council meeting is set to comprehensively assess the current structure, with a focus on rate rationalisation. Discussions include consolidating GST slabs, tweaking rates for various sectors like textiles and fertilisers, and even exempting health insurance premiums up to a certain limit. Rate changes on luxury goods are also on the cards. Businesses must closely monitor these potential changes and analyse their operational impact.

Moreover, GST authorities are actively pursuing audits and investigations, leading to increased demand orders and litigation. The Goods and Services Tax Appellate Tribunal (GSTAT), intended to address the large backlog of appeals, is still not fully operational. While the government aims to make it functional by the financial year’s end, businesses must navigate the appeal process and consider interim measures to prevent aggressive recovery actions from tax officials. The recently announced amnesty scheme offers conditional waivers on interest and penalties, requiring businesses to carefully evaluate whether to opt for this scheme or pursue litigation.

Businesses Brace for Impact

Furthermore, the new Invoice Management System (IMS), already in pilot testing for B2C invoicing, introduces another layer of complexity. This system requires recipients to accept or reject invoices and credit notes, which can directly affect input tax credit reconciliation. While intended to streamline processes, the IMS presents integration challenges and potential legal ambiguities, keeping businesses and tax professionals on their toes.

What should businesses do? In the face of these economic and policy shifts, a proactive approach is crucial. Companies need to stress-test their financial models against continued low commodity prices and prepare for potential GST rate and procedural changes. Adaptability and vigilance will be key to weathering this dual challenge in the coming months.

Image Courtesy: India Today