Come July, smoking cigarettes may not pinch the pocket but cinema tickets are unlikely to become cheaper. Instead stay home and watch a movie since DTH and cable TV operators may drop their prices once the goods and services tax (GST) is rolled out. Else, catch a play or a classical dance performance.
Smartphones too will cost less but those with a sweet tooth must pay for it — both pastries and cake, as also ice cream, could become dearer. Although the headline tax rate for movie tickets under GST will be 28%, they could become costlier since states are allowed to levy entertainment tax on behalf of local bodies. “They are likely to continue with the current rate of entertainment tax,” revenue secretary Hasmukh Adhia had observed last week post the meeting of the GST Council in Srinagar.
Meanwhile, taxes on cable and DTH services are set to fall from July 1 to 18% from the current rate of 25-40% — a total of the entertainment tax, service tax. Moreover, since the service providers are eligible to claim input tax credit, the tax incidence could be even smaller.
Headline tax rates for medicaments and medical devices are set to fall. Moreover, packaged cement, which currently attracts a tax rate of over 31% — including central excise tax, value added tax (VAT), central sales tax (CST), octroi and entry tax — will now be taxed at 28%.
All products and services will be taxed at 5%, 12%, 18% or 28% except those that are exempted. Some demerit goods will attract an additional cess over 28%. Approximately 19% goods are being taxed at 28% while 43% fall in the 18% slab. About 17% of products will attract a levy of 12% while 14% are in the 5% slab. Around 7% of goods are exempt from GST. Most services are to be taxed at 18% versus the current rate of 15%. About 40% of the CPI basket are exempt from GST.
According to HSBC, estimates suggest that there is likely to be no upward impact on inflation. Rather, if tax cuts are passed on and the input tax credit mechanism runs with part efficiency, the GST could help lower the inflation rate by 10-50 bps. “If producers pass on just half of the tax cuts into final prices and the input tax credit mechanism works with part efficiency (given possible teething issues), headline CPI inflation is likely to fall by 10 bps. On the other hand, if producers fully pass on tax cuts to final prices (and the input tax credit mechanism continues to work with part efficiency), headline inflation could fall by up to 50bps,” economist Pranjul Bhandari wrote.
The GST has built in an anti-profiteering clause that requires companies to pass on the tax cuts and the gains from input tax credit to the consumer in the form of lower prices.
The tax burden will be lower in the case of medicaments — substances used for medical treatment — and also ingredients that go into ayurvedic, unani, siddha and homeopathic medication, the government has said in a statement.
“Medicaments, in general, attract 6% central excise duty and 5% VAT. Further, CST, octroi, entry tax, etc are also applicable in general. At these rates, the current tax incidence works out to more than 13% compared with the GST rate of 12%,” the government said.
In the current structure, smartphones attract a 2% central excise duty and VAT rates that range from 5% to 15% in different states. The current rate of more than 13.5% will fall to 12% once the GST is rolled out.
Moreover, medical devices and surgical instruments that attract an effective tax rate of over 13% will see a smaller incidence of down marginally to 12% under GST.
Currently DTH and cable service providers are not eligible for VAT input credits paid on domestically-procured capital goods and inputs of special additional duty (SAD) paid on imported capital goods and inputs. In addition to the benefit of lower headline rates of GST, the service providers shall be eligible for full input tax credits of GST paid for respect of inputs and input services.