GST impact: Cars, FMCG items to get cheaper; services dearer

Luxury cars, FMCG products, consumer durables, electronics items and readymade garments will become cheaper once GST is rolled out next year, but mobile phones, banking and insurance services, telephone bills as well as air travel will be dearer due to higher tax.

Under the new indirect taxes regime, likely to take effect from April 1, 2017, levy on manufactured goods will come down, while consumers may end up spending more as service tax burden would go up, as GST is a consumption based tax.

While the government is sure of the benefits the Goods and Services Tax will bring to the common man, it says it is still early days to predict which items will become more expensive or cheap.

"On the whole, GST will bring down the burden of taxes on common man. However, unless the rate structure is finalised, it is not possible to predict which items will get relief," Revenue Secretary Hasmukh Adhia told PTI.

Tax experts claim that the current practice of tax on tax — for example, VAT being charged on not just the cost of production but also on the excise duty that is added at the factory gate leading to cost build-up — will go once GST is rolled out.

This will help bring down prices of a range of products — from FMCG to consumer durables and electronics to readymade garments.

On the other hand, for goods which currently attract low rate of duty like small cars (excise duty of 8 per cent), the impact of GST will bring about a price hike. However, for SUVs and big cars that attract excise duty of 27-30 per cent, will see a marked drop in prices.

Tax experts feel that all services, barring essential ones like ambulance, cultural activities, pilgrimages and sporting events that are exempt from levy, will become costlier as the present 14.5 per cent rate is likely to increase to 18-22 per cent.

Therefore, eating out, travel, telephone bills, banking and insurance services, hiring cabs, broadband, movies, branded jewellery and popular sporting events such as IPL will become expensive.

"We cannot predict specifically any such thing. Once the rate structure of various items is decided then only we can predict the items on which the tax will go up or come down," Adhia said, when asked if tax on services like mobile bill payment will go up with GST.

GST, hailed as the most powerful tax reform that India has seen, aims to do away with multiple-tax regime on goods and services and bring them under one rate.

GST will alter the present system of production-based taxation to a consumption-based one.