GST rate cut brings relief but govt revenue may take Rs 16,000-crore hit

For the first time since the Goods and Services Tax (GST) was introduced on July 1, 2017, consumers may now be able to buy white goods (electrical goods) at prices 7-9 per cent lower.

The GST council headed by Union finance minister Piyush Goyal in its 28th meeting on July 21 slashed the rates fixed on a slew of /electrical products from the highest tax slab of 28 per cent to 18 per cent. In the `value-added tax (VAT) regime, white goods items were taxed at 26 per cent.

Prices of small-screen televisions, refrigerators, vacuum cleaners, kitchen appliances, washing machines and personal-care gadgets would come down after the rate cut.

Consumers, especially the middle class, are sure to benefit from the latest rate cut. But, rate cut may lead to a drop in revenue collection of approximately Rs 16,000 crore. Moving white goods from 28 per cent to 18 per cent alone would lead to a drop in revenue collection by Rs 8,000 crore.

Piyush Goyal, however, seemed confident that greater sales and growing GST revenue would boost the economy.

The NDA government hopes the cuts will enthuse the middle class in shedding post-note ban reluctance and urge them to spend again.

Since the move was made with an eye on the upcoming polls, finance ministers especially from non-BJP ruled states and allies are miffed with the cuts.

Punjab finance minister Manpreet Badal chose to call central government’s stand at the GST council meet as “undemocratic, unpleasant, unfortunate and non-egalitarian”.

Reacting to the rate cut, outgoing chief economic adviser Arvind Subramanian said that the highest slab of 28 per cent would be “virtually a hollow shell” over the next year or so.

Over the past one year, GST council pruned a number of goods in the top tax slab of 28 per cent by bringing down tax levied on 191 goods, leaving just 35 luxury items in the highest tax category.

Here’s how the following items will be affected:

ELECTRONIC ITEMS

White goods manufacturers such as LG, Whirlpool and Samsung have gleefully welcomed the 10 per cent reduction in GST. Manufacturers are hopeful that ahead of the festive season, a dip in prices may enthuse customers who were holding back on buying since November 2016 when demonetisation was implemented.

Prices of refrigerators are expected to come down by Rs 4,000 and those that cost below Rs 20,000 by Rs 1,100.

Washing machines priced below Rs 20,000 are likely to cost Rs 1,500 less.

To meet the new tax slabs, some manufacturers are changing the price labels on the stock already held by traders and dealers to depict the new MRP.

The finance minister has already flagged the anti-profiteering authority to keep an eye on the market to ensure that the benefit of the cuts is passed on to the consumers.

The rate cut will also impact prices of smaller electrical items like hand dryers, food grinders, lithium ion batteries, vacuum cleaners — all of which have moved from the 28 per cent to the 18 per cent GST slab.

FOOTWEAR

Footwear priced up to Rs 1,000 will now fall under the GST slab of 5 per cent, while earlier it was under the 18 per cent.

RAKHIS, BROOMS, MARBLE

The government has also heeded to the demands of the swadeshi lobby by doing away with tax on phool jhadu, sal leaves, stone and wooden idols and marble. Ahead of Raksha Bandhan, stone-embedded rakhis will be exempted from tax too.

E-BOOKS

Tax rate on supply of e-books has been brought down to 5 per cent from 18 per cent.

SANITARY NAPKINS

Sanitary napkins are slated to go in the tax exempt list but experts say that manufactures who used to get input tax credit may pass on the 18 per cent tax on raw materials to consumers, thus negating to a large extent the GST exemption on sanitary napkins.

Goyal, however, contested the possibility and is said to have told the GST council that the prices will come down.

HOSPITALITY SECTOR

Hospitality sector is also one of the biggest beneficiaries from the rate cut. Piyush Goyal on Sunday announced that the GST on accommodation will be based on the transaction value and not the declared value as fixed earlier.

ITEM NEW GST RATE
Electronic items 18
TV (up to 27 inch) 18
TV (above 27 inch) 28
Paints, wall putty, varnish 18
Sanitary napkins 0
Marbles, stone and wooden idols, 0
Fortified milk 0
Bamboo flooring handicrafts 12
Footwear (up to Rs 1000) 5
Handbags, jewellery box, glass artware, ornamental mirrors, handmade lamps 12
Scents, toilet spray 18
Leather 18
SPVs, trucks 18
Rakhis 0

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Updated: July 27, 2018 — 12:37 pm