Major consumer durables to be taxed at 28%

Mobile handsets are likely to be provided some relief as government pushes local manufacturing

Majority of the items from the consumer durables sector are likely to be taxed at 28 per cent under the final goods and services tax (GST) rates that were announced on Thursday. According to industry experts, some of the items – belonging to the lower price bands – might be taxed at 18 per cent, considering their mass nature. 

While Finance Minister Arun Jaitley on Thursday announced the tax slabs for all products and services in the country, he did not specify the items under each of the four tax slabs – five, 12, 18 and 28 per cent. Currently, majority of the while goods are taxed at 26-31 per cent rate, depending on their nature and usage. Products such as laptops and personal computers will fall under similar tax slab, which might increase their prices marginally, if manufacturers decide to pass on the additional tax burden.

Mobile handsets assembled in India, especially smartphones, are taxed much lower at present. Majority of the large vendors have opened facilities here to avail various tax sops provided by the central government through the modified special incentive package scheme and by local authorities. The tax rates for such devices could be kept below 18 per cent. 

“This is definitely a good sign and a positive development for the consumer durables sector. Lower tax will also add to the growth of the overall industry and the will be passed on to the consumers. These are early phases, but GST was long awaited and the industry would keenly observe the future developments,” said Kanwal Jeet Jawa, CEO and managing director of Daikin India. 

Sachin Menon, partner and head of indirect tax at KPMG in India, said: “The rate slabs look reasonable. But, the proposal to levy cess over and above GST will distort the very purpose of introducing GST. It’ll lead to tax cascading in the absence of set-off mechanism unless the cess is levied only at last point of sale.” 

According to experts, the biggest benefit that the GST will bring in is reduction in complications related to taxation. The consumer durables sector is considered inventory-heavy and inter-state transportation of goods lead to complications in taxation. 

The Rs 1 lakh crore consumer durables sector in India is growing at 15 per cent and is expected to cross Rs 2 lakh crore in revenue by 2020. Items such as smaller television sets that do not fall under the premium category are effectively taxed at 21-22 per cent at present; these are expected to be incorporated in the 18 per cent tax slab. 

“It is good that the Centre and states have agreed on the tax structure for the GST regime. It is expected that the consumer goods and consumer electronics should get favourably impacted under the GST regime. However, it will depend on the exact classification of goods under different tax rates. So, the next critical and the most crucial step is the grouping of goods under the GST rate structure, which will determine the impact on consumer goods and electronics,” said Anita Rastogi, partner (indirect tax) at PwC.