From automobile to real estate and consumer goods: GST impact explained
India is all set for its most ambitious reform in decades, which is expected to transform the world’s fastest growing major economy into a single market for the first time. The long-awaited Goods and Services Tax (GST) rolls out Saturday even as businesses complain they are ill-prepared for the massive changes about to ripple through India’s unwieldy $2 trillion economy. (Dibyangshu Sarkar / AFP)
The Goods and Services Tax (GST) has been termed a potential game changer, the single biggest tax reform in independent India, one that the government says is founded on the concept of one nation, one market, one tax .
The GST, according to the government, will be extremely beneficial to consumers, as it will bring down the price of goods and curb inflation. It is also said to reduce the delays in tax payments and ensure more stringent checks on the same.
What remains to be seen, however, is how the GST rates from 5% to 28% will affect various consumer-facing sectors of the Indian Economy. A look at some of these sectors and how GST will impact them.
AUTOMOBILE: Robust demand to drive away any near-term dips in car sales
GST adds to the challenges the sector has faced, from demonetisation and then implementation of more stringent emission norms. The passenger car segment is expected to see an overall reduction in tax outgo, with bigger cars and sport utility vehicles (SUV) benefiting from lower tax rates.
CEMENT: A marginal tax relief
Contrary to expectations of cement firms, which were hoping for an 18% GST rate, the sector has been categorised in the 28% slab. Despite that, cement makers will see some relief in tax payout as the effective tax rate for packaged cement is anyway 29-31%.
CONSTRUCTION, REAL STATE: Input cost credit to offset higher rate
So far, the construction sector, including real estate, has had an effective tax outgo of between 11% and 18%. Under GST, the entire works contract is charged 18% tax. However, the sector is likely to gain from the input tax credit that is available under GST rules.
CONSUMER GOODS: Anti-profiteering measures to keep a lid on gains
Packaged consumer goods makers sales growth will be hit in the near term as trade channels have cut purchases in the run-up to GST. Overall impact is seen as neutral as rates have been cut on mass consumption items and hiked on higher-end products.
JEWELLERS: No dent to demand
The GST rate on gold jewellery has been fixed at 3%, lower than expectations of a 5% rate. The new rate is close to the current 2%. Hence, it should not affect consumer buying dramatically.
LUXURY HOTELS: High-end chains will pay more
From a pre-GST tax rate that varied between 18% and 25% based on state levies, GST classifies hotels into four buckets based on room tariffs. Those with room rates below Rs1,000 will be tax-exempt, although the rest will be taxed at 5%, 12%, 18% and 28%.
MULTIPLEXES: Input tax credit will bring benefits
Multiplexes are expected to benefit, primarily owing to input tax credit on fixed costs such as rent and common area maintenance. The GST rate has been fixed at 28% for tickets costing over Rs100.
TELECOM: Hit by higher tax burden
Telecom companies, already weighed down by high taxes and levies, now need to contend with an additional 3% tax with the shift to GST. A service tax of 15% applied to telecom services earlier.
VALUE FASHION: Gets a leg-up
The 5% GST rate on apparel priced below Rs1,000 is expected give a fillip to the value fashion business. Post GST, the entire value chain raw material to the finished product will come under the tax net.
(Published in arrangement with Livemint).