The introduction of goods and services tax from July 1 is expected to increase prices of most discretionary items, including consumer durables, mobile handsets, aerated drinks and sanitary-ware products. While, the tax rates for widely consumed staple goods such as fast moving consumer good items have been kept in line with expectations, discretionary spending may be further hit in a market that is already grappling with a slowdown.
Prices of items like television sets (TV), refrigerators, washing machines and air conditioners may see price hikes in tune of 1.5 to 4 percent in coming days. As effective tax rates for these items have been set at 28 percent – up from 24 to 26.5 percent at present. According to senior executives from major durable manufacturers, it is imperative that they pass on the additional burden to consumers. Companies were finding it difficult to absorb rise in material costs for TV panels and compressors.
“Further to the announcement of GST slabs, we are expecting a price of 4 percent and upwards in consumer durables. The trade partners might have slight impact due to input tax, however they could recover by increase in their selling price. We shall not be giving any incentive for inventory adjustments to trade partners”, Manish Sharma, President and CEO, Panasonic India and South Asia.
At a time when the government is aggressively pushing for digitization, where smartphones and value added feature phones are expected to play central role, increase in effective taxes could be a dampener. While, currently the effective tax rate on such items is at 8-9 percent, under GST regime it is set to rise up to 18 percent. “It will be the last nail in the coffin, if the government does not come up with a remedy. Considering smartphones at par with consumer durable items is incorrect”, said Syed Tajuddin, chief executive officer, Coolpad India.
Pardeep Jain, Managing Director, Karbonn Mobiles said, “Keeping with the objectives of "Digital India" the ideal GST rate should have been 5 per cent. The additional price burden due to GST will have to be unwillingly passed on to the consumers to sustain profitable growth for our business”.
“The rates declared for IT products seem to be on the higher side. Clarity is awaited on GST on differential duty on imports and local manufacturing, on services and treatment of area based exemptions”, said Rajeev Jain, director and group chief financial officer (CFO), Intex Technologies.
The Indian Beverage Association said, “We are extremely disappointed with sweetened aerated water and flavoured water being placed in the highest tax slab rate of 28 per cent combined with an additional cess of 12 per cent. The effective tax rate of 40 per cent on these products under the GST regime is against the stated policy of maintaining parity with the existing weighted average tax. This will have a negative ripple effect and hurt the entire ecosystem of farmers, retailers, distributors and bottlers in India”.
While, Coca-Cola India gets over 60 per cent of its Rs 10,200 crore yearly sales from aerated drinks, PepsiCo generates nearly 45 per cent. However, a 12 per cent tax rate for fruit juices and milk based drinks is a breather for them as the two were expanding their portfolio outside of colas for quite some time.
Most of the staple consumer good items such as dairy products, meat derivatives, breakfast cereals and processed vegetables have been kept under 18 per cent or lower tax brackets, which is in line with the expectations, companies said. However, certain items have been taxed higher than the current rate.
“We are disappointed with the government’s decision to levy 12 percent GST on Ayurvedic medicines and products, which we feel will be adverse for the Ayurvedic medicines category, at a time when the government has been talking about promoting traditional Indian alternative medicine”, said Lalit Malik, CFO, Dabur India.
Sanitary and bathroom products will be taxed at 28 per cent – higher than the current rate of 24 per cent. “Driving luxury car & going to toilet will cost you same! Sanitary ware and bathroom products, considered as basic necessities in a country like India, is against the Swachh Bharat initiative of our honourable Prime Minister”, said K E Ranganathan, MD, Roca Bathroom Products.