From automobiles to agriculture, EY analysis on impact of GST rate change

Automobile 

 

Key impact

 

• Relief from long-pending disputes around GST rates on auto components with a single GST slab of 18% 
• Lower rates effectively increase disposable income, strengthen purchasing capacity, and support broader consumption growth
• EVs retain tax edge, but reduced gap also makes hybrids attractive
• Compensation cess relief on larger cars (including SUV and luxury vehicles) increases credit fungibility

 

Way forward

 

• Reassess pricing structures to manage profitability, dealer margins, and customer expectations
• Manage inventory & working capital
• Align distribution chain in terms of pricing, managing returns, promotional schemes, compliance requirements to minimise disruptions and disputes
• Review state incentives, subsidies and initiate dialogue with authorities if revisions or renegotiations are needed
• Assess the treatment of accumulated compensation cess credits
• I-T readiness to adopt the updated rates 
• Assessing impact of delayed utilisation of ITC accumulated on account of capex 
• Focus on media and advertising strategies to showcase lower prices

 

FMCG 

 

Key impact

 

• Lower prices, better affordability
• Higher volumes, rural traction, festival boost
• Positive investor sentiment
• Regulatory clarity needed
• Consumption and manufacturing boost
• Faster refunds for exporters

 

Way forward

 

• Need updated billing systems for new rates
• Reassess MRPs, margins, and product classifications
• Realign pricing policies with trade partners
• Advocate to the government on issues related to inverted duty refunds, cess credit, anti-profiteering clarity, and MRP re-sticking relaxations. 
• Plan for transitional stocks
• Update or relabel packaging to meet regulatory compliance

 

Logistics 

 

Key impact

 

• Higher tax cash outflows for logistics players

 

Way forward

 

• Need for transition readiness 
• Service pricing impact across supply chain to be evaluated for determining preferred GST rate for varied transportation services

 

Financial services 

 

Key impact

 

• Reduction in cost of insurance for consumers 
• Denial of ITC to create cascade of taxes
• Impact on policies issued in the past due to inability to increase premiums
• Need to review premiums for new policies 
• Transition challenges 

 

Way forward

 

• Determining the imapct of denial of input credit
• Change managemnet for new rates
• Advocacy for open issues

 

Pharmaceutical 

 

Key impact

 

• Lower treatment costs, increased accessibility and affordable healthcare 
• Lower costs for hospitals and diagnostic centers 
• Increased challenges for manufacturing firms of accumulated ITC on account of inverted duty structure
• Transition planning and management for inventory and in-transit stock
• No immediate plans to revive anti-profiteering probes, onus on businesses to voluntarily pass on rate reduction benefits to consumers

 

Way forward

 

• Update ERP, tax systems  
• Reassess product pricing, MRP setting, and margin planning to reflect cuts
• Restructure pricing policies, renegotiate contracts, and ensure timely talks on transitional aspects
• Identify old stock, plan credit notes/discounts to clear inventory
• Assess the risk of ITC accumulation for imported consignments in transit or on-hand stock, consider mitigation measures 

 

Agriculture 

 

Key impact

 

• Reduced cost of production 
• Boost sales due to enhanced affordability
• Increased farmer income 
• Consumer to benefit due to overall synergy in the value chain

 

Way forward

 

• Restructure pricing policies and align with distributors/trade partners, renegotiate contracts, and ensure timely communication on transitional aspects to minimise supply chain disruptions. 
• Reassess product pricing, and margin planning to reflect tax reductions