Jaitley says GST regime will be more consumer-friendly

NEW TAX SLABS FMCG products stand to gain the most

The wait is finally over: India has cleared the way for the biggest tax reform since Independence. The main beneficiaries of the new goods and services tax, due to be rolled out on July 1, include steelmakers and some consumer goods, though personal care items including sanitary ware will be taxed at the top rate, along with appliances such as air conditioners.

Union Finance Minister Arun Jaitley said that the Goods and Services Tax (GST) Bill, which is to exempt dailyuse commodities from the levy, is going to be more efficient and a consumer friendly taxation system. “Four different rate slab for services are 5%, 12%, standard rate of 18% and luxury rate of 28%, out of which five per cent mostly comprises of transport services,” said Jaitley while addressing the media in Srinagar.

“GST in relation to the services sector was completely adopted in today’s meeting. Depending on the nature of service, there are various categorizations which have been made with a set of services, which have been exempted at present,” Jaitley added.

The Fast-Moving Consumer Goods (FMCG) sector is a clear winner. Consumer staples including milk, fruits and vegetables, grain and cereals have been exempted. Sugar, tea, coffee and edible oil will be taxed the lowest rate of 5%.

But personal-care items will be taxed at 28%, save for hair oil, soaps and toothpaste, which will attract an 18 per cent levy. Smokers be warned: cigarettes will attract a tax of 5% on top of the peak GST rate of 28%.

The impact in the automobile market is likely to be marginal. Vehicles already attract different levies, which add up to 28% — the peak GST rate fixed for the sector. Gains derived from a unified tax system may still be passed on to consumers, analysts say.

Consumer durables like air-conditioners, refrigerators and washing machines will attract the peak rate, which is slightly higher than the existing tax slab. Companies may increase prices to preserve margins.

A reduction in tax on coal and metal ore to 5% will cut input costs for steelmakers. Cement-makers may increase prices to offset the impact of the peak rate, though a lower tax on coal is expected to cushion the blow.

A 5% tax rate on equipment like solar panels and wind turbines may help keep a lid on project costs for developers such as Inox Wind and Suzlon Energy.