Companies will pass GST rate cut benefits to consumers

Arun Jaitley announced that the tax rate on a vast range of items of daily use would be brought down from 28% to 18%

Had to cut down on your monthly budget for cosmetics or postpone purchasing your much-desired watch? Not anymore. Prices of these items, along with chocolates, chewing gum, detergents, shampoos, and many other commonly consumed items, may come down soon, as taxes on them are being slashed significantly.

As Finance Minister Arun Jaitley announced that the tax rate on a vast range of items of daily use would be brought down from 28 per cent to 18 per cent, after the GST Council meet on Friday, consumer good companies cheered the decision. While most are still working on how lower tax rates will pan out for them, many of them said they would pass on the benefits to consumers, which, in turn, would bring down the prices. Also, the reduction in tax rate for restaurants — from 18 per cent to five per cent without any input tax credit — will benefit consumers.

The government’s decision comes after heavy lobbying by industry players. High tax rates on categories like detergent, shampoo, printer and cartridges, deodorant, and hair dye had not gone down well with major marketers of these items.

Welcoming the move, a spokesperson of the country’s largest chocolate maker Mondelez India said, “We are delighted with this very progressive step that the government has taken to reduce GST rates for products like ours that are consumed by the masses. We have always believed in keeping the interest of our consumers in mind and will pass on the benefits to them.”

“We appreciate the reduction in rates across categories of cosmetics as these products touch the lives of the common man and woman every day. We await the official communication from the government about the list of categories affected by the change in the rate,” said Jean-Christophe Letellier, managing director, L'Óreal India.
 

According to Vivek Karve, chief financial officer, Marico, most cosmetic items such as creams, gels, serums and deodorants will now bear a lower 18 per cent GST rate.
 

“This reduction will make these products more affordable and will certainly aid consumption. Marico has been very proactive in terms of passing on the benefits of lower GST rates to consumers. We have already effected a 5 per cent reduction in hair oils and 3-4 per cent reduction in saffola oils after the GST roll-out in July,” he said.

Ullas Kamath, joint managing director, Jyothy Labs, said the firm was considering passing on the 4 per cent tax benefit that it received due to the GST. “This will help enhance consumption and improve customer sentiment considerably. Prior to the GST implementation, the tax slab for JLL was at 21 per cent and post-GST it has come down to 17 per cent. This move will also lead to an uptick in rural demand, which showed signs of improvement during the September quarter. Due to easy GST compliance processes announced by the government, we will also see many unorganised players shifting to the organised sector, leading to healthy competition and more choice for consumers,” he said.

According to a senior executive from a multinational restaurant chain, this is expected to reduce incidences of restaurant owners not passing on the tax benefits to consumers, which was rampant under the earlier system.

However, concerns over taxes on raw materials for consumer goods items remain. According to Suresh Nandlal Rohira, partner, Grant Thornton, the extent of benefits can be deduced only after reviewing the revised tax rates on raw material prices.

Ceramic tiles industry hails tax revision

Gujarat’s ceramic tiles and sanitaryware industry has welcomed the revision in GST rates from 28 per cent to 18 per cent on the products. According to the Morbi-based cluster that mostly comprises small and medium enterprises (SMEs), the move would not only reduce working capital requirement to that extent for the 700-odd units but also increase their competitiveness against Chinese products.

“Ever since a 28 per cent GST was levied on us, we had become costlier than Chinese products in the five southern states that form a major market for us. We will now be more competitive, while our working capital requirement also reduces,” K G Kundariya, president of Morbi Ceramics Association, told Business Standard. Before to the GST roll-out, the industry was paying a 12.5 per cent excise duty on ceramic products. 

However, the agitating textile traders and powerloom unit owners of Surat were still in a wait-and-watch mode. 

“There is still one more day of announcements to go. We hope rate cuts for the textile industry will also be announced,” said Tarachand Kasat, president of the Surat-based GST Sangharsh Samiti and a leading textile trader.

(Vinay Umarji adds from Ahmedabad)