We look at three categories of goods and five services important to your household to assess the impact of goods and services tax (GST)
It’s been a little more than a year since the rollout of the goods and services tax (GST). While most goods have become cheaper, most services have become costlier. So far, the impact on the household has been slightly positive, said Pratik Jain, indirect tax leader, PwC India. We look at three categories of goods and five services important to your household to assess its impact.
Food items: The overall impact on food items has been positive as the tax rate has gone down from 6% to 5%. For example, packaged tea and coffee, edible oil and packed paneer are all 1% cheaper.
But behind the big number, there are smaller variations. For example, butter and packaged chicken are now taxed at 12% instead of 6% earlier. Chocolates, chewing gum and corn flakes are now cheaper at a GST rate of 18% instead of an earlier rate of 26% (12.5% excise plus 13.5% VAT).
Cosmetics and consumables: This category, including soap, toothpaste, hair oil and shampoo, has largely become cheaper. All the above goods and face cream are now taxed at 18% instead of 26%, while medicines retain the same rate of 12%, which was 6% VAT plus 6% service tax earlier.
White goods: White goods, including televisions, are now taxed at the highest slab 28%, which is 2 percentage points more expensive than before.
“The indirect tax cost has come down for FMCG companies. Even where rate has increased, such as for white goods, they are getting greater input tax credits, reducing overall cost,” said Abhishek Jain, tax partner at EY India.
But the benefits are yet to be passed on to consumers. “The corporates were more focused on compliance than value creation. Now they will focus more on passing benefits,” said Pratik Jain.
Restaurants: The most talked-about service post-GST is restaurants. The rate for air-conditioned restaurants was hiked to 18% from the earlier 6%. After widespread concern from the industry and consumers, it was reduced to 5%.
“When the rate was 18%, customers blamed us although the money was going to the government,” said Rakesh Chhaiyal, manager of Royal Challenge, a fine dining restaurant in Mumbai.
Telecom: GST on telecom services was increased to 18% from 15% earlier, and the increase is reflected in mobile phone bills.
Airlines: Tax on airline transport service was reduced from 6% to 5% for economy class, while it was hiked from 9% to 12% for business class. But the cost does not increase much as GST is giving more input tax credit than service tax did. “To some extent, this offsets the rate hike,” said Abhishek Jain. The increased rate does not have much of an impact “because a major chunk of travel is economy class”, he added.
Catering and real estate: Catering services are pricier, taxed at 18% compared to earlier service tax of 10.5%.
Similarly, from a service perspective, sale of real estate under construction is now taxed at 12% (actual rate of 18% but one-third deduction for land value) against the earlier service tax of 4.50%. “It seems more expensive for a consumer. But the higher rate also gives higher credits, which should possibly bring down prices,” said Abhishek Jain.
Financial services: The rate for this has gone from 15% to 18% for some banking transactions, insurance, stock market and mutual funds. Mint reported last month that this will make these services marginally more expensive.
The overall effect on households has been more or less neutral because some companies have not yet passed on benefits to consumers, said Aashish Kasad, consumer products and retail sector tax leader, EY India. In the long run, the savings should get passed on to consumers.