GST Rate Cut Benefits Only 11 out of 30 Top-Consumed Items
The impact of GST rate cut on consumption will depend on the speed and the extent to which the GST cuts are passed to consumer prices.
Chennai: As the new GST rates come into effect on Monday, tax rates of 11 out of the 30 top-consumed items have been brought down and these 11 products account for less than 30 per cent of monthly per capita consumption expenditure. Further, the rate cut in some categories will benefit only the lower middle class as rates have come down in only low value products.
Among the top 30 items constituting the Monthly Per Capita Consumption Expenditure (MPCE) of both urban and rural consumers, 11 items have been subjected to GST rate cut. These items include milk products, medicines, packaged processed food, footwear, beauty services, cars, motorcycles and scooters, toilet soaps and hand and body washes. These items account for 28 per cent of rural MPCE and 26 per cent of urban MPCE, finds Crisil.
Top consumed items which have not seen any change in rate cuts include petrol, school and college fee, mobile use charges, mobile handsets, TV other than premium ones, jewellery, edible oil, and LPG.
Many services, such as restaurants and mobile usage, have grown quickly over the past decade and they continue to face 18 per cent GST. Additionally, emerging services such as e-commerce delivery were brought under the net, taxed now at 18 per cent.
Further, GST rate cut on products in low-value range will mainly benefit the lower-middle class.
The GST rate has been reduced on lower-value footwear, cars, two-wheelers and hotel accommodation. For clothing, it raised the purchase value for availing 5 per cent GST to Rs 2500. In contrast, taxes were hiked for premium variants of clothing to 18 per cent from 12 per cent.
Tax on premium two-wheelers was hiked to 40 per cent from 31 per cent, even though it was lowered for standard variants. Crisil Intelligence estimates a 7.8 per cent drop in prices of standard two-wheelers, but a 6.9 per cent increase in premium variants.
Petrol, electricity and alcohol are among large consumption items, which still remain exempted from the GST framework.
The impact of GST rate cut on consumption will depend on the speed and the extent to which the GST cuts are passed to consumer prices.
“In terms of consumer behaviour, we expect three effects. First, there will be a little more consumption of essentials such as soaps and hair oils, though these categories are not highly elastic. Second, because essentials make up a large share of household spend, lower GST frees up money for other consumption. Third, as seen during GST 1.0, a lot of the unorganised sector, which does not pay tax or operate legally, will either come into the tax net or lose competitiveness. This strengthens branded players like us who comply with tax laws,” said Sudhir Sitapati, Managing Director and CEO, Godrej Consumer Products.
