Consumer goods may get cheaper under GST

NEW DELHI | MUMBAI | KOLKATA: Several consumer products and white goods may become cheaper when the goods and services tax is rolled out because effective tax on most items will be down at least 2 per cent under the multi-layered tax structure finalised by GST Council on Thursday.
Under the proposed regime, tax on most consumer goods will come down from over 30 per cent to 28 per cent and even to 18 per cent in the case of certain categories including soaps, oils and some white goods. A committee of secretaries will decide on which item goes into which tax bracket.

"As long as the rates are in the high teens and the low twenties in aggregate it should lead to a consumption boost," said Vivek Gambhir, managing director at Godrej Consumer Products. "Ideally, it would have been nicer for the slabs to be lower because 18 per cent and 28 per cent are leaning on the higher side. If the effective rate becomes 16 per cent to 18 per cent that would definitely be positive and bring down prices," he said.

For makers of soft drinks, the tax impact is likely to be minimal, unless they are clubbed with tobacco and taxed at more than 40 per cent. The existing excise duty on soft drinks is 18 per cent. The industry is waiting for the final decision. "It’s too early for us to comment on the current developments.

The food processing industry is looking forward to rational tax rates for carbonated beverages, savouries and fruit juices in the GST regime," said Rajdeep Datta Gupta, chief financial officer at PepsiCo.

Durables and appliances companies said the impact on consumer prices would be marginal. GST on small screen televisions and will be around 18 per cent, while that for white goods like refrigerators, washing machines, air-conditioners and large screen televisions will be at 28 per cent. At present, the tax structure on televisions is around 24 per cent while that for white goods is around 30 per cent.

Companies said this may not lead to much price drop except in small screen televisions since there is significant increase in television panel prices globally and commodities like steel. "The marginal drop in taxes will have no big impact since the difference in rates is just marginal," said Godrej Appliances business head Kamal Nandi.

Electronics makers, however, said their cost of doing business will reduce under the new tax regime. Videocon chief operating officer CM Singh said the biggest benefit of GST will be convenience of business since under the current regime, companies had to set up warehouses and pay VAT in each state.

For cigarettes, the taxation rate including excise and state VAT varies between 47-65 per cent depending on the cigarette length and industry expects at most a marginal hike under the GST regime.

Mobile bills for consumers, however, could go up. The GST rate for telecom companies is likely to be pegged at 18 per cent. Telecom service providers currently attract 15 per cent service tax — being an infrastructure service designated as an essential service under the Essential Services Maintenance Act, 1968 — and are availed of by the masses.

Rajan Mathews, director general of Cellular Operators Association of India (COAI), said any increase in tax would have a direct impact on mobile phone bills of subscribers. Edible oils makers said they were confident the government would place the category in the 5 per cent GST bracket since it is a necessity product.

Since edible oil is consumed by almost 99 per cent of the households, it should logically fall in the lowest category of taxation under GST, said Cargill chairman Siraj Chaudhry.

"However, since around 70-75 per cent of edible oil is imported, the government can probably balance the import duty with GST in a way that consumers benefit," he said.

Krish Iyer, CEO of Walmart India, said finalising the rates now may help the country roll out GST by April next year. "With half the CPI basket at 0 per cent and majority of daily consumption essential items at 5 per cent, it will keep inflation in check," he said.