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India’s move to a Goods and Services Tax (GST) last month has been generally heralded as a good thing.

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Unifying tax codes across states and allowing the free movement of goods between states will speed up internal trade and simplify companies’ reporting — that is, if the government had resisted the temptation to meddle with multiple tax rates.

The introduction of the GST in India creates complexity out of simplicity. Whereas markets like the U.K. that have a similar VAT system have one main rate of 20%, with a reduced rate for home power of 5% and zero on a very limited range of goods like food and children’s clothes, India has five rates (0%, 5%, 12%, 18% and 28%), with many very similar products falling into a lower or higher bracket – encouraging distortions in the market as producers switch ingredients, product focus or labeling to try and circumvent higher bands.

Still, the benefits are expected to be significant even if reality doesn’t live up to expectation. The metals industry is predicting savings of 40-45% in the time taken to move goods as border tax points to collect state taxes and hence lengthy delays of up to 10 hours will become unnecessary.

For metals producers, it will come down to what rates apply to inputs and outputs for the industry — and there does appear to be some good news on that front.

Steel producers, at least, will face lower input tariffs, as raw materials like iron ore and coking coal will attract one of the lowest rates at 5%. Of course, like all GST systems, firms can either claim back what they pay to suppliers and collect for the Treasury what they raise — such that GST becomes net neutral for processors — but there remains a cash-flow implication. If producers are only paying out 5% but collecting 18%, it is beneficial for them from a cash-flow perspective.

Maybe not surprisingly, power costs are exempt from GST (that is not the case in other countries), but for an emerging economy and one with a large contingent of poor people, exempting energy costs from the taxation system has some logic.

A pre-GST Clean Energy Tax of Rs 400 per ton is not recoverable but was previously, so its exemption now represents a minor cost to steel producers that they will not be able to reclaim. Likewise, a state royalty of 15% on iron ore is another tax outside of GST, as are various Forest Development Fees and contributions to the District Mineral Foundation and National Mineral Exploration Trust, which are considered to in effect be taxes that steel producers cannot reclaim, according to the Indian Express.

Steel producers’ input costs for natural gas — a fuel source increasingly becoming the preferred choice for steel producers switching to intermediate sponge iron or hot briquetted iron — will face some impairments as a result of these taxes being unreclaimable (either partially or completely).

Like the old swings and roundabouts, there will be some opportunities to win and some that will lose, but in general the industry sees it as positive – not least because it will encourage the unregulated end of the market to join the mainstream and take part in the tax system.

For firms that are not operating within the tax system, there will be significant cost implications and no opportunity to reclaim.

More than anything, that is probably the underlying purpose of India’s GST: to bring all enterprises into the tax system, speeding up boarding crossings and eventually simplifying tax collection and transparency are welcome benefits.

But getting everyone to pay their fair share will, in the long run, be the biggest win.

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This morning in metals news, the chairman of the Japan Iron and Steel Federation warns that U.S. tariffs on its steel imports could lead to retaliation, copper hit its five-month high and aluminum producer Norsk Hydro expects 2017 to present a balanced aluminum market.

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Section 232 Tariffs, If Instituted, Could Lead to Blowback

The world continues to wait for the Trump administration’s announcement regarding the conclusion of its Section 232 investigation into steel imports. Most, however, predict that tariffs will be the remedy President Donald Trump chooses, a course of action which EU Trade Commissioner Cecilia Malmstrom in recent weeks said would lead to retaliatory measures from the EU.

Japan has also joined the fray in warning of retaliation if tariffs are slapped onto steel coming into the U.S.

In a report from Industry Week, Kosei Shindo, chairman of the Japan Iron and Steel Federation, told reporters Monday that other countries could respond with protectionism on products other than steel, opening Pandora’s box.

Copper Riding High

Copper continues its strong run, hitting a five-month high Tuesday, Reuters reported.

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Positive news on the Chinese economy and a weak U.S. dollar contributed to the rise for copper.

Earlier today, our Stuart Burns wrote about copper’s big year to date.

A Balanced Market

Norsk Hydro CEO and President Svein Richard Brandtzaeg said he expects a “largely balanced” global aluminum market this year.

“We see a global primary aluminium deficit in the quarter. This is driven by increasing deficit outside China. For the full year, we are maintaining our 4-6 percent annual aluminium demand growth outlook for 2017 and expect a largely balanced, global aluminium market,” Brandtzæg said in the aluminum producer’s second-quarter results announcement.

Hydro, which earlier this month announced the acquisition of Sapa, reported second-quarter earnings of NOK 2,930 million.