GST cut: Companies to pass it on to buyers

Many consumer good companies say they will pass on the benefits to consumers, which will bring down prices.
Arnab Dutta reports.

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, 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 prices.

Also, the reduction in tax rate for restaurants -- from 18 per cent to 5 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 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, Karve said.

"We have already effected a 5 per cent reduction in hair oils and 3 to 4 per cent reduction in saffola oils after the GST rollout 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 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," he said.

"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," Kamath said.

According to a senior executive from a multinational restaurant chain, this is expected to reduce incidents 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.

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, 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, Morbi Ceramics Association, pointed out.

Before the GST rollout, 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 are 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.

Additional inputs: Vinay Umarji in Ahmedabad

Photograph: Pawan Kumar/Reuters