Amid festivity, auto & electronics companies carry wait of GST on their shoulders
The GST Council is slated to meet in the third week of September to finalise new rates, based on recommendations by the group of ministers on rate rationalisation.The government said its aim is to reduce GST on daily use and aspirational products to enhance affordability, and drive consumption by moving towards two tax slabs from the current four.The plan is to facilitate this by scrapping the 28% and 12% slabs and shifting products in these two categories to either the 5% or 18% rate. There will also be a 40% rate for luxury and sin products such as tobacco.
The GST Council is the apex decision-making body for the eight-year-old indirect tax. GST 2.0 will be the first major overhaul of the levy.
Consumers are most likely to wait for the new rate implementation, unless they have a pressing need, said B Thiagarajan, managing director at air-conditioner maker Blue Star. 'While the GST reduction is a welcome move to spur demand, there is a transition time for the new rate implementation,' he said, noting that dealers are now reluctant to add stocks.
'Ideally, if the new rates would have been implemented from September 1, the early festive period sales would have been extremely good. But now consumers will wait,' said Thiagarajan.A senior executive at an automaker said that while the industry is not cognisant of the final tax incidence, there is intense speculation, which may force deferment of purchases. 'It will impact footfall at dealers… Several customers who were actively enquiring have postponed their decisions, expecting a rate cut,' he said, requesting anonymity.
The levy reduction is a boon amid sluggish car and consumer electronics sales. Consumers have been cutting back on discretionary spending with steps such as income tax rate cut and good monsoons failing to trigger a consumption spurt so far. Passenger vehicle sales growth has turned negative from May. According to government officials, small cars up to 4 metres length with up to 1200cc engine capacities are likely to be placed in the 18% bracket, compared to the current 28%, and 1-3% compensation cess.Larger vehicles are likely to be taxed at a special rate of 40%, instead of 43-50% currently. Even two-wheelers are likely to come down to 18%, from 28% plus a cess for some models now. Only taxes on electric vehicles are likely to remain at the current 5%.Among electronic appliances, products such as ACs, television sets of more than 32-inch screen size, and dishwashers attract 28% GST. Here too, industry experts expect a drop to 18%. Products such as refrigerators, up to 32-inch TVs and washing machines are already in this slab.
Sales will get impacted during the interim period of revised GST rate implementation, said Satish NS, president at Haier India. He is, however, hopeful of a pent-up demand surge during Diwali, by when the new rates should be rolled out. 'The benefits of tax reduction can be passed on to consumers without any lag as soon as they are notified,' he said. Haier India has started reviewing its business plans for large-screen TVs, expecting a spike in sales.
A senior auto industry executive said on condition of anonymity that while the rate cut is a welcome measure, the timing is a challenge. 'The market is already slow. The government has indicated that the new levies will come into force around Diwali,' the executive said. 'Our fear is that customers across segments will defer purchases. Sales are likely to get disrupted for the next two months.' The festive season, India's biggest consumption period, is falling earlier this year. It usually starts with Ganesh Chaturthi in Maharashtra, which is in August this year, followed by Onam, Navratri-Durga Puja—which are all in September, peaking with Diwali in October. This entire period contributes 25-35% of annual sales.
Online-focused TV manufacturer Super Plastronics is expecting sales to decline over the next month compared to 4% and 12% growth in the last two months, said Avneet Singh Marwah, its chief executive. The company is licensed to sell brands such as Kodak, Thomson and Blaupunkt.
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