GST: A Mixed Bag

By Saurabh Kumar

Goods and Services Tax (GST) Rates: Mixed Bag. Cigarettes, Aerated drinks and luxury goods to suffer.

• The government has announced the slabs of GST rates applicable, although the exact rates will be fixed by the committee of secretaries.

• The rate of GST on Gold has not been decided and will be a function of the revenue neutrality of taxes on other goods.

• Merit goods: Food grains and essential items have been kept at nil GST rate

• Essential goods have been placed at 5%, it might include some items which are currently at 2-5% duty. It might include some items of processed foods also.

• 12% rate – items of mass consumption

• 18% – expect small appliances and essential food and personal care items at this rate. We believe it could benefit the personal care companies meaningfully, expect at the premium or luxury end.

• 28% – White goods and certain good which are currently at 30-34%. Paints and white goods fall into this category and should benefit from this. We don’t rule out that lower end paints might be at lower rate of 18% as they have lower taxes now also.

• Cigarettes, Luxury cars, aerated drinks will have a cess over and above 28% duty. The duty will be calculated as a balancing item for revenue neutrality and will be reviewed every year. However, the GST council will try that the overall incidence of taxes does not increase.

• Cigarette’s duty indications negative for Industry: We estimate that ITC has 46.5% of gross sales as excise duty and another 26% as VAT and local taxes which make it 56% as a % of Ex-factory realisation. While the rates are yet to be announced for demerit goods, cigarette duty remains a black box as of now. We believe flexibility to increase rates in Demerit goods and annual review will remain a lingering issue for cigarette companies in the years to come.

• Personal care and household goods to benefit: we believe that personal care and household items like washing detergents, dishwashing liquids, hair oil, shampoo, soaps, shaving creams, toothpaste, skin creams etc., will benefit as duty incidence will come down from 24.4% to 18%. However, we don’t rule out at premium segments in these like liquid detergents, hair conditioners, body wash, hair color etc might attract 28% duty.

• Mass processed foods items will see a reduction in duty while chocolates, malted food etc., might face higher duty.

• We believe that seem to be the biggest beneficiaries of the change will be companies manufacturing/producing consumer goods.

• Services Tax to rise to 18% barring some items.

Kumar is the managing partner at New Delhi-based SK Attorneys which focuses on the corporate & tax laws, mining, oil & gas and infrastructure practices. fii-news.com.