IMPACT ON HOUSEHOLDS BUDGETS UNDER GST TAX RATES

It is yet unclear what items in your household budget are likely to cost more, and which will be cheaper. The GST Council has decided on four main tax rates, 5%, 12%, 18% and 28%. The highest tax rate is more than what the industry was anticipating.

According to Finance Minister Arun Jaitley, items that are used by the aam aadmi, that is which qualify for mass consumption, will be taxed at 5%. Around 50% of the items that form part of the consumer price index basket (such as daily food consumption items) will not be taxed at all under GST. The tax rate of gold is yet to be decided, the Finance Minister said. Jaitley has also said that several items will be transferred to the 18% GST rate category from 28%. 

Impact of GST rate on Domestic Appliances and Electrical machinery

 

Handlooms used in the handicraft industry are the only machinery charged at NIL rate of tax under GST. Most of the electrical machinery are charged tax at a similar rate to the rate declared under GST. It is expected that the prices are going to stay neutral for the end consumer of the above electrical machinery. Although the manufacturers using electrical machinery will benefit from the availability of input tax credit on the services used which was not available under VAT.

The rate for each household electronic appliance like the fridge, washing machine, vacuum cleaner etc is fixed at the rate of 28% under GST. It is likely that the increase in the tax burden by 2-3% under GST would be passed on to the final consumer.Placement of the basic appliances such as fridge and washing machine under 28% slab shows that electronic appliances are still considered as a luxury by our government.

Manufacturers of such household electronic appliances like Samsung, Godrej, Voltas etc may not be able to provide any benefit of GST to the end consumer due to the tax rate of 28%. Clarifications are also required for the treatment of the current tax exemptions or deductions provided by the different states. Manufacturers in Mumbai would be the only one’s getting relief under GST as they are charged octroi at the rate of 5% after the other taxes( average 25-26%) on household electronic appliances.

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 Nand.

Final GST Slab rates are :

• Zero rated items : Foodgrains used by common people. ( A sigh of relief…hmmm…)
• 5% Rate : Items of mass consumption including essential commodities will have low tax incidence.
• 12% and 18 % Rate :  Two standard rates have been finalised as 12% and 18%.
• 28% Rate : White goods like Air conditioners,washing machines,refrigerators,soaps and shampoos etc.that were taxed at 30-31% shall be now taxed at 28%.

Demerit goods like tobacco,tobacco products,pan masala,aerated drinks and luxury cars shall be charged at the highest rate of 28%.An additional cess on some luxury goods shall also be imposed.
Services that are now taxed at 15% shall be taxed at a higher rate of GST @ 18%. Various goods have been classified to fit into the above categories.

It is infact too early to predict the actual impact of GST on different sectors.

Conclusion

It is expected that due to the expected inflation and rise in the tax rate would increase the price of the television, fridge, vacuum cleaner or air-conditioners. The price of commercial electrical machinery is expected to stay neutral.