Hair oil, soaps, toothpaste may get cheaper under GST

Experts feel that the 18% tax rate would have a positive impact on businesses

Coming July, consumers in the country may expect a cut on their monthly bills for three staple personal care items– hair oil, soap and toothpaste. As the much awaited goods and services tax(GST) comes into effect from July 1, prices of these three items are expected to come down owing to the lower tax rates.

Tax rates on branded goods have been slashed to 18 per cent, finance minister Arun Jaitley and secretary Husmukh Adhia announced on Thursday after a GST Council meeting at Srinagar. Currently, the effective tax rate for the three items is pegged at 23-24 percent. According to experts, this would help the companies bring down prices in the long run, if other variables such as raw materials prices remain stable.

However, a lower tax bracket may not prove to be beneficial for all manufacturers. Companies enjoying excise duty sops may land up paying higher taxes under the new rates, at least two industry executive said on conditions of anonymity. Various fast moving companies including Hindustan Unilever (HUL), Patanjali, Dabur, Marico, Jyothy Labs, Emami and Bajaj Corp, among others, have recently set up plants in Assam to avail tax benefits.

Earlier, states like Himachal Pradesh and Uttarakhand offered similar benefits to attract investments. Under the GST regime, goods produced in such areas will no longer enjoy lower tax rates. Experts said, companies may need to adjust their production capacities and realign geographical distribution of their manufacturing to bring down the impact.

“The announcement of 18 per cent GST rate for soaps, toothpastes and hair oils is along expected lines and is certainly welcome. It will have a positive impact on our business. That said, this covers only about 20 per cent of the business and we are still awaiting clarity on categories like health supplements, shampoos and packaged juices, among others,” said Sunil Duggal, chief executive officer, Dabur India.

Duggal expects tax rates for packaged juices, which is a significant product under Dabur’s portfolio, to remain at 12 per cent rate. 

Harsh Mariwala, chairman, Marico, told CNBC TV18: “We need to have a relook at the supply chain. While, companies are fully prepared, there could be issues faced by them during the first few months. While consumers are not expected to be impacted, it is the traders who may face problems initially. So, I expect some short-term remedies that could be provided (for them).”

Emani Ltd's CEO N H Bhandari, however, said that the entire rate structure needs to be assesed in order to comment on the final impact of the new regime.

“Prima facie it appears to be beneficial for us as well as the industry. However we need to study the rates in its totality to make specific comment on its impact,” said Bhandari.

According to Suresh Nair, tax partner, EY India, this will facilitate positive sentiment among companies in the sector. While, initially there might be some issues, it is expected to spur demand in some time.

Similarly, KPMG Partner Priyajit Ghosh also hailed the development saying: “It is definitely a good measure as consumers will get benefitted.”

The council, however, remained undecided over tax rates for packaged and branded foods, Jaitley said. Mithai (Sweets) have been decided to be taxed at 5 per cent under the GST regime. While the tax rate for coffee has been set at 5 per cent, instant coffee has been exempted from this bracket.