Prices of a vast majority of everyday-use and mass consumption items, as well as that of scores of industrial inputs and capital goods, could potentially reduce significantly, giving a big push to both consumption and investment demand in the economy, as the country embraces the goods and services tax (GST) shortly.
Businesses will acquire the ability to cut prices without taking a hit on their bottom lines, as either lower tax rates (in a minority of cases) or enhanced input tax credit or a combination of both will reduce their tax costs and help boost sales volumes.
More than four-fifths of the goods would fall under a GST rate of 18% or below, finance minister Arun Jaitley said here after a crucial GST Council meeting, which endorsed the rate fitment for “1,211 items barring six categories”, the bulk of the GST goods universe.
Currently, around 35% of items are being taxed at 27% (12.5% excise + 14.5% state VAT), although the real tax incidence on them is 4-5 percentage points lower because the excise duty is virtually levied on the ex-factory price, given the abatement for post-manufacturing value addition. “There will be no increase (in the tax incidence) on any commodities. In many cases, there is a reduction (in rates),” the minister said.