56th GST Council meeting would indeed be considered as most important meet having tremendous benefits to the common man and industry alike. Albeit rate reduction on various goods consumed by larger population of India, which promises to result into money savings to the end-users, there are some areas which could be silently eating away the proposed benefits, which are discussed as below :
1.FMCG, Food & Personal Consumption articles, Medical, etc. – The GST tariff rates have been proposed to be reduced from 18% or 12% to 5%, which surely is a very positive action for larger good of the common people. However, there is no clarity on the transitional ITC reversal (contained in the inventory as on the date of changeover). Moreover, ITC denial on the input supplies would make the reduction impact narrow.
2. Coal, Lignite, Peat, etc – These are goods which are directly linked to power cost and the GST rates on these have been proposed to be hiked from 5% to 18%. There is mammoth increase of 13% GST on these goods, while there is no ITC benefit and the Cess is additionally applied. All these will certainly lead to increase in Power Cost substantially. This will lead to cascading effect on the price of the goods manufactured out of power consumption. Also, common man will have adverse effect because raise in power cost would undeniably reflect in home electricity bill also. So, there would be double whammy.
3. Life & Health Insurance – The much-needed action on reducing the tariff on these services have finally been proposed to NIL rate. Finance Ministry has really done commendable action which was pending for so long. However, denial of ITC on the input services would add to the cost of premium reducing the tax rate benefit to the consumers. Moreover, group insurance has been kept out of this beneficial initiation by the Govt.
4. Textiles – The anomaly of charging higher GST rates of 12% or 18% on inputs such as fibers & yarns and lower tariff of 5% on finished products such as fabrics, have been removed by lowering the GST rate on inputs also to 5%. This will indeed have positive impact on domestic textile manufactures to compete with the imported goods. There will be immense benefit in terms of no accumulation of ITC and resulted hassles of protracted refund realizations. It will help improve working capital. However, for specified Apparels and quilted textiles items would be costlier as the rates have been revised on such goods from 12% to 18%.
5. Motor Vehicles & Tractors – The GST rates have been reduced on vehicles having upto 1200cc for petrol, LPG and CNG cars and upto1500cc of diesel cars which will spurt the demands for this segment. However, vehicles above 1200cc petrol, LPG and CNG and above 1500cc of diesel cars have been included in the category of sin goods levying 40% GST. There is considerable market for these vehicles also which will now be adversely impacted. Similarly, tax rate on Tractors, Agricultural machineries, etc. have been brought down from 12% to 5%. However, it is worth noting that Tractors were always fully exempted till the end of Excise regime and were made taxable in GST only. So, what was already exempted in pre-GST period has been now made exempted after 8 years of GST.
6. MRP and APP challenges – The packaged goods falling under MRP contain maximum retail price at which it is usually sold to the ultimate consumers. Hence, any tax rate change benefit should ideally reflect in the MRP tags of such goods. Unless there are robust tax provisions in place to check proper implementation of the rate reduction, the full benefit may not actually accrue to the common man. While Anti-Profiteering Provisions are in place to address such issues but it depends on how effectively the same is exercised. Moreover, APP may result in hassles for genuine tax payers also to substantiate the rate reduction in pricing.
Conclusion
- There is substantial scope of positive impact on economy due to these welcome reforms but unless the Anti-profiteering provisions are implemented thoroughly at ground level, the ultimate consumer may reap peanut benefits only.
- For genuine tax payers falling under MRP provisions, MRP realignment needs to be done and discount structures need to be revisited to avoid APP issues.
- Goods on which GST rates have been proposed for upward revision from 12% to 18% will result in increase in cost of such goods viz. Apparels priced above Rs. 2500, quilted textiles items, specified paper & paperboards, etc.
- Due to such massive rate reduction on goods of widespread consumption, there would be huge impact on the States’ revenue generation. This may compel them to resort to independent higher SGST on the selected goods. That will ultimately lead to increase in cost of such goods.
- Much of transactions between B2B would have almost neutral effect as ITC on such goods is always available to recipient.
- Cash losses, blocked ITC and huge compliance burden may have dampening effect on the taxpayers.
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