GST rollout, launch in India: The Goods and Services Tax or GST rollout will take place at midnight on June 30 at the Central Hall of the Parliament. The event will be attended by Prime Minister Narendra Modi and President Pranab Mukherjee along with many senior political leaders. However, Congress has decided to boycott the event.
The GST council’s meetings over the few weeks have been a budget-like experience that has decided the fate of consumers as they were finalising the rates for various products. Overall, the rates for most products remained the same, if not reduced slightly in order to ensure that it does not impact the consumer price index. Having said that, there are certain areas that would negatively impact the common man.
Let’s begin with basic necessities covering roti, kapada and makaan.
The GST council has exempted cereals, flours, fresh fruits and vegetables from the GST net. However, when it comes to other food preparations, there are no significant rate movements on dairy products, tea and coffee powders, sugar, etc. While packaged food attracts GST of 5%, the tax we pay for eating out in restaurants would depend on the facilities provided such as air conditioning, hotel star rating, etc. or the turnover of the restaurant. For example, small restaurants would pay 5%, non-air-conditioned restaurants would pay 12%, air conditioned restaurants would pay 18% and restaurants at 5 star hotels would pay 28%. As far as the restaurants are concerned, you pay based on where you go and this is to ensure that the rich is taxed on a gradient.
When it comes to clothing, the rates are kept moderate at 12% for readymade garments, while footwear below Rs 500 is at 5% and at 18% for footwear above Rs 500. Clearly, this suggests that the government has given it a deep thought to keep the prices lower.
With respect to housing, the GST rate has been pegged at 12% for construction of residential properties, which is positive for home buyers who would marginally benefit from the overall rate reduction impact from today. The other benefit for the home buyers is the common treatment across the country, as in the earlier scenario, we had seen that homes in various states were taxed differently. However, the Central Government’s push for affordable housing has not been considered as the existing service tax exemption does not find a place in the GST list of exemptions.
Now, going beyond the basic necessities to some of the commonly used FMCG products such as washing machines, televisions, air-conditioners, we see that there is a marginal benefit as the rates are moving down from the existing overall rate of about 29% to 28%. But the products that shall bring cheer to the common man are toothpastes, soaps and hair oils, which would see an almost 6% reduction in prices. We will have to wait to see how fast the companies are able to revise their prices to pass the benefit to the consumers, as the products available on the shelves of department stores may not see an immediate revision in prices this July.
The general dilemma amongst consumers who would like to purchase a car is whether to buy it before GST or hold the decision till 1 July. On a reading of the GST rate schedule, it may seem that the GST rates may not play a significant role in clearing the dilemma and therefore may not have any significant arbitrage. However, on one hand, the car manufacturers will be able to pass on the efficiencies through reduced prices under GST to the prospective buyers post 1 July. On the other hand, the dealers will have to clear the existing stock before 1 July as the transition rules do not provide a significant cushion, which means that there are discounts offered to clear their inventory before the implementation of GST.
Some of the expenses of common man such as mobile phone bills would remain almost the same but the discretionary spends such as amusement parks, movie tickets would see an increase because of a higher GST rate of 28% proposed in addition to the entertainment tax imposed by local authorities in each panchayat.
The government has also released a list of 89 products where the incidence of tax under GST is lower than the present tax incidence, which covers food and beverages, medical and health, household goods of daily use, educational, clothing and footwear and fuel.
Overall, the Government has done a fairly good job in its attempt to keep the rates similar to the existing regime, which ensures that this key tax transformation does not affect the consumers. The Government would do well if they carry out consumer education programs to create awareness of the steps taken by them to ensure prices are stable.
(By Kunal Wadhwa, Partner – Indirect Tax, PwC. Views are personal)