GST Rate Cuts : How is it going to help small businesses

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The Goods and Services Tax (GST) Council, in its 28th GST council meeting, approved rate cuts for several consumer centric items such as cosmetics, refrigerators, washing machines, and small screen tele units, and cleared the widely demanded exemption on sanitary napkins. The other products which have been exempted from GST include deities made of stone, marble or wood, ‘rakhis’ without precious stones and sal leaves.

With the intent to provide relief to middle-class consumers, the council reduced the tax on lithium ion batteries, vacuum cleaners, food grinders, mixers, storage water heaters, hair dryers, paint, varnishes, water coolers, perfumes, toilet sprays and cosmetics to 18% from the 28% slab.

The changes in tax rate came into effect from July 27, 2018.

Given below are the GST rates by industry labels  with impact analysis.

1. Automobile :

  • Lithium ion batteries : GST rate change from 28% to 18%. This will bring down cost of electric vehicles, since battery cost comprises nearly 35-40% of total EV cost currently. The move will improve affordability and acceptance of EVs in India, in-line with the Government’s plan.
  • Special purpose vehicles such as concrete mixer, crane lorries, fire fighting vehicles, etc. GST revised rates of 18% from 28%. There will be limited impact on companies, since the GST revised rates include limited type of vehicles.

 

2. Oil and Gas :

  • Ethanol for companies : GST revised rates of 5% from original rate of 18% previously. The move will somewhat (though not significantly) soften impact of rising crude oil prices, which have rallied in recent times. Government has set target of 10% ethanol blending in petrol by 2022 and 20% by 2030.

3. FMCG :

  • Sanitary napkins – GST new rates of Nil rated GST tax structure from erstwhile tax rate of 12%. The prices of sanitary napkins are expected to be cut. However, since the category is now exempted from the GST, the companies would no longer will be able to take the benefit of input tax credit and thus, the cut in price is expected to be marginal.

4. Paint :

GST revised rates of 18% from 28% earlier. This rate cut should increase decorative players’ ability to effectively manage margins in an inflationary input cost environment as the ability to take price hikes increases post the tax cut driven reduction in consumer prices.

One can expect this rate cut to aid pre immunization especially in the decorative segment as the customer is able to purchase superior quality paint at the pre-GST budget.

5. Consumer electricals : The new GST rates for following items @ 18% (earlier 28%)

  • Washing machines, vacuum cleaners, televisions up to the size of 68cm, refrigerators (including water coolers, ice cream freezer; etc).
  • Domestic and kitchen appliances such as food grinders and mixers & food or vegetable juice extractors, shavers, hair clippers etc.
  • Storage water heaters and immersion heaters, hair dryers, hand dryers, electric smoothing irons etc

6. Footwear : Footwear having a retail sale price up to Rs1,000/pair now will attract new GSTrates of 5% (footwear having a retail sale price up to Rs500/pair is already covered under 5% rate)

7. Textile : Fabrics attract GST at the rate of 5% subject to the condition that refund of accumulated ITC (input tax credit) on account of inversion will not be allowed. However, the GST Council has recommended for allowing refund to fabrics on account of inverted duty structure. The refund of accumulated ITC shall be allowed only with the prospective effect on the purchases made after the notification is issued. This will reduce the cost for the fabric manufacturers.

8. Hotel : The hospitality industry has lauded the GST Council’s decision to levy goods and services tax on actual tariff charged to customers for hotel rooms instead of declared tariffs.

This move is certainly a big relief particularly for premium hotels because for so long they were forced to charge 28% GST even when they used to offer discounts to price rooms at less than Rs 7,500. The hotel rooms with tariffs of Rs 7,500 and above attracts GST rates of 28%, while rooms with Rs 2,500-7,500 tariffs attract 18% GST.

Conclusion :

The rate rationalisation would definitely bring cheer for the industry and consumers, what would be interesting to see is how the government would try and compensate the revenue loss on account of tax rate reductions.

Moreover few product as mentioned above say in consumer electricals section like grinders, mixers, storage water heaters, water coolers, water heaters, electric ironing machines etc., are basic appliances that are required in every household on a daily basis. The decision of GST rate cuts in this section was deserving one and it was already anticipated by the industry. And the new GST revised rates in petroleum section say ethanol will help the petroleum prices to be lowered in any time in future.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.