GST Council keeps ACs in 28% tax slab, durable firms disappointed

Durable companies were left disappointed on Saturday with the Goods and Services Tax (GST) Council, which met to decide on rate rationalisation of key items, keeping air conditioners in the highest tax slab. The buzz prior to the meet was that air conditioners would be shifted from 28 per cent to 18 per cent in line with appliances such as washing machines and refrigerators, which had already been moved to a lower tax slab six months ago.
 
In July, a clutch of items from hair dryers to shavers, mixer grinders, vacuum cleaners, lithium ion batteries, and freezers, apart from refrigerators, washing machines and small television (TV) sets were shifted from the 28 per cent bracket to 18 per cent. On Saturday, the only relief that durable makers got was the tax rate on TV sets, with a screen size of up to 32 inches, was lowered to 18 per cent from the earlier 28 per cent. The move effectively brought larger TVs in line with smaller ones, which Kamal Nandi, president of industry body the Consumer Electronics and Appliances Manufacturers' Association and the business head of Godrej Appliances, said, was welcome.
 
"This will further propel demand in the category. Evolving consumer lifestyles, rising temperatures and pollution levels make consumer durables a must-have for every Indian home," Nandi said. "Unfortunately, ACs are still in the highest tax slab," he said.
 
While companies have not indicated right now when the GST rate cut on TVs (having a screen size of up to 32 inches) will be passed on to consumers, typically they will be expected to do it within a week, indirect tax experts said. In July, durable companies had passed on GST benefits within seven days to avoid coming under the scanner of the anti-profiteering body. They had also used every lever possible to announce the price cuts - putting ads in newspapers and social media in particular. Trade partners, including dealers, were also informed of the price changes with new price lists shipped to all in various cities and districts within days.
 
Power banks (of lithium ion batteries) and video games have also seen their GST rates slashed to 18 per cent from 28 per cent on Saturday, which industry executives said was not significant. "Given the hype around the rate rationalisation of the 28 per cent tax slab in the run-up to the meeting, there was much expectation that air conditioners would be moved out of the highest tax slab," Eric Braganza, president, Haier Appliances India, said. "It not happening has been a bit of dampener," he said.
 
The GST Council has not given any indication whether air conditioners will move out of the highest tax slab at its next meet as well.
 
Dates for the next meeting were not indicated on Saturday.
 
What has also upset a number of players is the description of ACs as "luxury items" by the GST Council for its decision to retain it in the highest tax slab. "The key consumers of ACs today are the middle classes," says B Thiagarajan, joint managing director, Blue Star. "I don't know whether it is right to call them luxury items, since for many ACs have now become a necessity. Besides, people lower down the socio-economic spectrum are also going in for ACs. So, how do they become luxury items," he said.
 
Some executives said given the government's push to adopt energy-saving devices, the tax rate on five-star inverter ACs could have been lowered to 18 per cent from 28 per cent. "This would have helped reduce prices and increase the share of energy-saving models," Thiagarajan said.
 

No show

• Air conditioners have been kept out of the rate rationalisation announced on Saturday
• This leaves ACs as the only key consumer durable sitting in the 28 per cent tax slab
• Washing machines, refrigerators, TVs (small and large) and kitchen appliances have all moved to the 18 per cent tax slab from 28 per cent earlier
• Companies have not indicated when the rate cut on TVs (upto 32 inches) will be passed to consumers
• Indirect tax experts say it will have to happen within a week