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7 Things to know about final GST rates
We have come a full circle. 17 years ago, the BJP government led by Atal Bihari Vajpayee, suggested the idea of a single Goods and Services Tax (GST). In 2017, the GST is going to become reality. And as the final step of the GST rollout, the government decided the tax rates.
The Goods and Services Tax council set the rates for 1,211 goods on Thursday, May 18th. Here’s a look at what the new rates are and what it means to you:
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New Tax Rates:
The council announced 5 slabs with tax rates of 0%, 5%, 12%, 18% and 28% each. The idea behind the tax rate is simple—the more essential an item, the lower the rate. The more luxurious a product, the higher would be the rate. That’s why 81% of the items will be taxed 18% or lower.
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What was expected?
Initially, when the idea of GST was put forth, it was to be a single tax rate. Last November, however, Finance Minister Arun Jaitley suggested that there could be four rate slabs—5%, 12%, 18% and 28%. Back then, however, the government did not announce which item attracted what rate. So, earlier, many worried that GST could be potentially inflationary because of higher tax rates of 28%.
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What's exempted?
There are many items with 0% tax. Food-related items like vegetables, fruits, fish, meat, eggs, milk, etc., as well as certain day-to-day use items like Sindoor, books, bangles, news and judicial papers, etc., are exempted from GST.
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What's cheaper?
The common man is likely to heave a sigh of relief. Most commonly-used goods are likely to turn cheaper, especially food items like grains, meat, fish, milk, sugar, tea, edible oil, and coffee. They were earlier taxed 0-5%. Here are some other items that could turn cheaper, as per various media reports: Consumer goods like soaps and hair products, branded goods, staying at hotels, eating at restaurants, two-wheelers and imported mobiles.
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What's costlier?
The automotive industry is not likely to be happy with the GST rates. Cars will attract 28% tax plus additional cess depending on the car’s size. This could lead to an increase in car prices, especially for small cars which used to enjoy tax benefits. Other goods to cost more include: tobacco products, mobile and internet bills, banking and insurance charges, aerated drinks and other luxury products.
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Worries about inflation:
The government said earlier that 60% of the goods were earlier taxed at 32%. Now, they would be taxed at lower than 28%. Plus, most of the essential or commonly used goods fall in the lower tax brackets. This could help avoid any increase in inflation. However, it is important to note that the council is yet to announce the tax rates for Services. This could be crucial in analyzing the impact of GST on inflation.
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Impact on the Economy:
The Services industry accounts for 53.66% of India’s economy*. So knowing the rates on different Services is crucial to understanding the impact of GST on economic growth. However, that said, GST is still an important reform for India. The simplification of the indirect tax regime is expected to increase government revenue and make the system transparent.
*Source - http://statisticstimes.com/economy/sectorwise-gdp-contribution-of-india.php
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4%
FMCG stocks touched an all-time high in trade on Friday after the GST announcement. The BSE FMCG index rose nearly 4% to a 52-week high of 9,839.93 levels. However, it eventually ended the day with 1.86% gain, taking its year-to-date (YTD) returns to 22.3%. In comparison, the Sensex has been up 16.68% YTD.
