GST-EFFECTS OF NEW RATES ON DIFFERENT SECTORS

What are the new GST rates for GOODS?

The Goods and Services Tax (GST) has been one of the key things that has caught the attention of the market given its implications on earnings of companies and expenditures of consumers. The government has kept a large number of items under 18% tax slab.  The following are the agreed rates for various goods under the GST system.

RATES UNDER GST REGIME

0% – GST rate regime on Goods

No tax will be imposed on items like fresh meat, fish and chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom etc

5%- GST rate regime on Goods

Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 %.

12% – GST rate regime on Goods

Frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, cellphones will be under 12 % tax slab.

18% – GST regime on Goods

Most items are under this tax slab which include flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.

28%  -GST rate regime on Goods

Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, will attract 28 % tax – the highest under the GST system.

What are the GST rates for Services?

A bulk of services will be taxed at the standard rate of 18 per cent under the four-tier rate structure for services that the GST Council finalised for taxing services.

0%- GST rate regime on Services

Education, healthcare and general railway travel will be exempt from GST.

5%- GST rate regime on Services

Transport of goods by air, road and railways as well as railway travel in AC classes and cab aggregators would attract a 5 per cent tax.

12%-GST rate regime on Services

Fertilisers, Works contracts would be taxed at 12 per cent and business class travel on airlines at 12 per cent.

18%- GST rate Regime on Services

IT,AC hotels that serve liquor  telecom and financial services.

28%- GST rate regime on Services

Five services, including five-star hotels and restaurants, cinema, gambling and horse race betting.

1. States can also levy an additional entertainment tax on cinema that will be used for local bodies.
2. A decision on the taxation of lottery is pending and it may be taxed at an even higher rate.
3. Rates not yet determined- gold, agricultural implements, bidis and cigarettes, textiles and footwear.
4. The GST Council also decided to tax e-commerce sellers at 1 per cent. The Centre and the States would each levy a tax at the rate of 0.5 per cent at source on online sellers

What are the responses to the new GST rates?

Government promises

• E Consumers will not be impacted as the service providers will get input tax credit. For any price hikes, the anti-profiteering clause will also come into effect.
• The concern over the hike in service tax rates by 3% [15 to 18] is unwarranted as there are multiple local and State levies such as entertainment and luxury taxes that would be subsumed.
• It is unlikely that there will a cess on services.
• With input tax credit now provided for both goods and services,  the effective tax rate will be lower than the headline rate.
• While billing customers, mobile and insurance companies will be expected to rework their prices to ensure that the input tax credit is reflected, and the overall incidence on customers does not increase.

How the new GST rates affects different sectors?

Effects on Automobile Industry

The GST for all cars will be 28 per cent, with an additional 1 per cent cess on compact petrol offerings with engine capacities of up to 1.2 litres. In the case of small diesel cars with engine capacities not exceeding 1.5 litres, the cess will be 3 per cent.

• Effectively, this means that petrol small cars will have a combined levy of 29 per cent compared to the present 27 per cent structure that includes excise duty and other taxes.
• Compact diesels will be even higher at 31 per cent in the GST regime, a good 4 percentage points higher than the existing level.
• The cess for SUVs and mid/large sedans will be 15 per cent from July 1, which means an overall levy of 43 per cent, lower than the near 46 per cent duty/tax structure existing today.
• GST Council  has clubbed together sport-utility vehicles (SUVs), which usually have higher emission levels, and hybrid vehicles, and set the cess at 15%. No incentives to environment friendly hybrid cars.
• LPG for domestic use would be taxed at 5% while LPG used commercially and in cars would be taxed at 18%.

Effects on Construction Sector

Cement and other construction materials such as tiles, ceramics and sanitaryware will now invite 28 per cent tax against 24-25 per cent earlier.

• While a lot of infra and development projects are ongoing and many are in the pipeline at the national level, categorisation of cement in the lower bracket would have helped to offer cost effective construction rate for such upcoming projects.
• However, the GST Council has maintained a lower rate of 5 per cent on key inputs like limestone, sand, gypsum and iron ore, which could support cement manufacturers to maintain procurement cost, which may be favourable by virtue of anti-profiteering clause.
• On the brighter side, lower tax on transport sector could benefit cement companies with lower freight costs, going forward.

Effects on Consumer durables Sector

Consumers will need to brace for a price hike of 3-4 per cent on consumer durable products, such as washing machines, air-conditioners, TVs, refrigerators, and ceiling fans, under the GST regime.

• most of the consumer appliances placed under the 28 per cent tax slab, the tax incidence of consumer durable companies will go up and the industry is likely to pass this on to the consumers.
• Industry players pegged the current tax rates on these appliances in the range of 23-26 per cent.
• products such as mixer grinders, juicers and air coolers should not have been equated with white goods like refrigerators and air-conditioners.

Effects on Telecom Sector

The implementation of a higher GST rate of 18 per cent could stress the business of the industry players even more for a short period.

• But since the subscriber base of telecom companies has risen despite frequent upward revisions in service tax, the long-term impact is likely to be negligible. The biggest challenge that the operators will relate to multiple registration and compliance procedures.
• For consumers, it will mean bigger phone bills and costlier mobile recharge. For instance, if your phone bill now comes to about Rs. 500, under the GST regime, you will henceforth pay Rs. 90 as tax, against Rs. 75 earlier (15 per cent service tax).

Effect on Banking and insurance sector

Consumers of financial services such as banking and insurance are unlikely to be affected despite the Goods and Services Tax (GST) Council fixing the GST rate higher at 18 per cent.

• The input credits that service providers will get under GST will be passed on to consumers, thereby offsetting the higher GST rate. Currently, financial services are taxed at 15 per cent.Input (tax) credit allows a service provider to lower the tax it’s owes the government by allowing it to claim a credit on what it has paid on inputs.
• NRIs may end up paying more on foreign exchange conversion.

Effects on Food Industry

While food grains and raw food items were exempted from tax, most processed products will attract lower taxes than the existing rates.Ready-to-fry products will attract only 12 per cent, against 14.5 per cent  currently paid.

• the government will relook at the GST rates on texturised vegetable proteins, commonly known as soya bari, and soya flour and bring them to the tax-exempt category to promote the use of soya protein to prevent and treat protein malnutrition in the country.
• The impact of GST rates on farm products such as edible oils, tea and coffee is seen as neutral, with no major impact on the end-prices for consumers, while a zero-tax on unbranded wheat products such as atta, maida and sooji may make them cheaper.
• A 5 per cent GST on branded wheat products could make them marginally expensive as the industry may chose to pass the tax burden to consumers. However, a zero tax on unbranded wheat products could make them cheaper. In the current tax structure, various States have levied a tax of 2-4 per cent on wheat products.

Effects on Power distribution and transmission companies

• Power distribution and transmission companies express mixed feelings over the impact of GST on the industry. While on the one hand, the cost of inputs is likely to reduce in the thermal power sector after the GST Council finalised the tax rate for coal at 5 per cent, against the current rate of 11.69 per cent, the cost of capital goods as well as services in all segment of power sector might increase from 15 per cent to 18 per cent.

Effects on Hotel  and Tourism Industry

Hotels and lodges will a tariff below Rs 1,000 a day will be exempted from GST, while those with a room rate of between Rs 1,000-Rs 2,500 will be taxed at 12 per cent and those with a tariff of Rs 2,500-Rs 5,000 will attract 18 per cent tax.

• Likewise, small restaurants with an annual turnover of less than Rs 50 lakh will be taxed at 5 per cent and other non-air-conditioned restaurants will be taxed at 12 per cent, while air-conditioned restaurants will be taxed at 18 per cent.
• Hotels charging Rs 5,000 and more room tariff per day will have to pay 28 per cent. Restaurants in such hotels, too, will have to pay 28 per cent GST.
• Experts said all hotels and restaurants should have qualified for lower tax slabs as they are critical employment generators for the economy and critical for tourism.

Effects on Drug Industry

• The rates – 5 per cent for life saving medicines (zero earlier), 12 per cent on formulations and 18 per cent on APIs – are more or less in line with what the industry was expecting but a larger concern for the industry would be how the transition would be made to these new rates.

Companies & Civil Society Response

1. Currently, most services are taxed at 15 per cent and there have been concerns that an 18 per cent rate under GST would make them more expensive. It might prove inflationary.
2. The main challenge for the sector in the GST era is multiple registration.

• Service tax will be collected by the Centre under a system of centralised registration.
• States have been reluctant to agree to centralised registration; the government is now exploring an arrangement for centralised compliance verification.
• There is a provision to grant centralised registration, but it has to be seen if the Centre can persuade the States through the GST Council.

All eyes now seem to be now on GST administration and the infrastructure expected to be ready for the transition. Many for instance, are hoping to get some clarity on the transition day stocks and what would be the view on the stock on the day of transition. More so, if the new rates are to take effect from July, the question is on how ready is the system for the transition.

Source : The Hindu , The Indian Express, Economic Times, Businessline, Business Today, Livemint.