Book publishing and printing in India, a key part of democratic discourse and education as well as a large industry, is in deep trouble after the twin challenges of demonetization in November 2016 and the implementation of the GST regime from 1 July 2017. Book sales in India were not taxed at retail for the most part in India and thus the book publishing industry has to some extent considered itself totally exempt although it has historically paid tax on various inputs, including paper supplied to printers and other costs such rent, travel, services and office supplies.
On the other hand, book printers have paid excise and customs taxes on imports of machines, paper and ink besides other taxes on inputs and business taxes as enforced by the central, state and local authorities. Book printing exports have at the same time enjoyed certain exemptions from tax on consumables and customs duties on imports of capital equipment as long as they conformed to the export obligations in said rules.
The GST regime instituted on 1 July 2017 began with several different tax rates or slabs for various categories of printing such as job work and work for publishers. Subsequent decisions taken by the GST Council in its 22nd meeting held on 6th October 2017 clarified or rationalized the tax rates to some degree. Even then, six categories were described in the schedule with GST tax rates of 5%; 12%; 18%; 18%; 18%; and 12%. In each of the first eleven points listed as the rationalized or considered outcomes of the October meeting, printing is described as a service which then would come under a SAC code rather than an HSN code for goods.
Point number 12, however, notes that a decision is yet to be taken whether printing is a service or manufacturing activity and this clarification is eagerly awaited. Since the printing business and book production have been explained to several of the concerned and knowledgeable officials in the GST Council and the commerce ministry, printers are looking for an early resolution to this question and are in fact optimistic of a positive outcome.
Service or manufacturing activity
Printers are requesting the GST Council to classify printing as a manufacturing activity and for the output of book printing and production to be classified as products rather than as a service. However, many domestic publishers and booksellers have become used to the ‘no retail tax’ on books over the past 60 years, and for any tax seen as a cost although they too have been paying taxes on paper supplied by them and on their other inputs. Major publishers have even said they would prefer books at retail to be taxed so that there is some realistic understanding and appreciation of the extent and scale of the publishing industry.
As a leading commercial printer told us recently, when he invoices a pharmaceutical company for their printed material, their SAP system cannot accept this physical product without an HSN code nor can its inventory system accept the goods or track their use. Similarly, when printed books are exported, these cannot be accepted or custom cleared at foreign ports of entry without an HSN code. Also when exports are to be credited against EPCG schemes under which printing press imports can postpone or defray customs duties, an HSN code is necessary.
Another printer comments, “A friend of mine, a builder, was arguing about the foolishness of the government in charging 28% GST on cement. But in all these years the cement dealer got the cement from the manufacturer at a price that included 12.5% excise and on top of that the builder and other customers paid 14.5% VAT. The total actually came to slightly more than 28%. Now the 28% GST that is paid on cement can be used as credit against the other GST that we collect from our customers. Understanding of this point is very necessary.
“In book printing, the paper bought used to suffer an excise tax of 12.5% and VAT of 5%. The printer used to invoice with 5% VAT. In our state we always paid sales tax on all books at 5%. Now the taxes are being cascaded and may be it will be better in some cases and not so in some.
“So, for a text book publisher who is supplying paper, nothing has changed. He is paying GST on paper and 5% on the print invoice. This is no difference from the previous system. He need not charge GST on his sale price, as it is zero. But the GST paid on the paper and the printing is already factored into his cost. How is this different from before? Here in this context, he can offset the GST paid towards his other GST inputs such as rent or phone bills or other input costs.”
Publishers and authors
The publishing industry is as fragmented, if not more, than the printing industry with many small and medium publishers. Speaking to one small publisher we learned that the fear of the impending GST turned to delight initially, when it was announced that there would be no GST on books except particular types of illustrated children’s books. This was also subsequently clarified so that there is no GST on any type of book. However, publishers were still confounded by the paperwork and costs of filing GST monthly returns that will now perhaps be required quarterly. In addition, where they had to send out one bill to a distributor earlier, they now have to send out hundreds of bills based on the GST number allotted to each destination.
Balraj (left) and Anuj Bahri at their store. Photo The Indian Quarterly
Then there is the problem of who will pay the 12% GST on authors’ royalties. The royalties paid to authors or writers are taxed at 12% under the reverse charge mechanism. Most authors are also aghast at the need to pay 12% GST on royalties since they already pay income taxes and although some of the bigger authors are able to get the GST out of their publishers, many others are not able to. The problem is that since there is no GST on books, publishers are finding it cumbersome to set off the credits of the GST they have paid on inputs.
Publishers and authors are also closely monitoring a case filed in the Delhi High Court by the Meerut Publishers’ Association. The association filed the writ petition on 11 September 2017, against the Centre, on what is being described as the biggest indirect tax reform since Independence.
Thus, while books have been kept out of the GST net, it is upsetting the cost structures of publishers who traditionally have low margins and long credit periods from their customers. (Printers will say they are in the same boat.) Tax experts say that currently, the refund mechanism is absent for input taxes in the case of exempted supplies such as books since the refund of inverted duty structure benefit is restricted only to taxable goods. Due to this, publishers are unable to set off royalties against tax liabilities. “Unlike other industries, we may ironically lobby for including books under GST,” says Ashwin Sanghi, author of novels such as The Rozabal Line, Chanakya’s Chant, and The Krishna Key.
Publishers also admit that the 12% GST on authors is a serious issue. Although some have notified authors that this will be deducted from their royalty checks, they do not expect this to be easily accepted by the authors. Overall, the book publishing and printing industries are complex and not as robust as some others. It seems that books are amongst the products that are most resistant to price increases and sales of books are not rising at their full potential considering the head room in literacy, education and increased buying power in the country.
Therefore, although the new GST regime is only bringing to light taxes that were being paid earlier and creating a level playing field for all who were paying and those who were avoiding taxation, the implementation has meant many revisions of rates and quite a bit of increase in the paperwork. It is a process of homogenization, which a heterogeneous and fragmented industry is finding a bit of a challenge to digest. There is an absolute lack of money in the market; whatever little cash flow there was has gone in paying GST taxes in advance of their recovery.
Decisions taken by the GST Council at its 22nd meeting held in Vigyan Bhavan, in New Delhi on 6 October 2017 were outlined in 12 points as given below.
The GST rates on job work services are being rationalized as follows: –
Relief to small units:
1. GST rates on job work services is being rationalised as follows: –
1 Job work services in relation to all products falling in Chapter 71 (including imitation jewelry) 5%
2 Job work services in relation to food and food products falling under Chapters 1 to 22 of the HS Code
(except packing of processed milk into packets) 5%
3 Job work services in relation to products falling under Chapters 23 of the HS Code except dog and cat food put
up for retail sale (CTH 23091000) 5%
4 Job work in relation to manufacture of umbrella 12%
5 Job work in relation to manufacture of clay bricks falling under CTH 69010010 5%
6 Services by way of printing on job work basis or on goods belonging to others in relation to printing of all
goods falling under Chapter 48 or 49, which attract GST @ 5% or Nil [Heading 9988] 5%
7 Services by way of printing on job work basis or on goods belonging to others in relation to printing of all goods
falling under Chapter 48 or 49, which attract GST @ 12% [Heading 9988] 12%
8 Services by way of printing on job work basis or on goods belonging to others in relation to printing of goods
falling under Chapter 48 or 49, other than those covered by (6) and (7) above, [Heading 9988] 18%
9 Services by way of printing in relation to printing of all goods falling under Chapter 48 or 49, which attract GST
@ 5% or Nil, where only content is supplied by the publisher and the physical inputs including paper used for printing belong to the printer [(Heading 9989)] 12%
10 Services by way of printing of all goods falling under Chapter 48 or 49 which attract GST @12%, where only
content is supplied by the publisher and the physical inputs, including paper used for printing belong to the printer 12%
11 Services by way of printing of all goods falling under Chapter 48 or 49, which attract GST @18% or above, where only content is supplied by the publisher and the physical inputs including paper used for printing belong to the printer 18%
12 To issue a clarification with regard to classification of printing products/services.