Impact of GST Rate Cuts and Rationalization: Key Winners and Losers Among Companies
The GST Council, led by Union Finance Minister Nirmala Sitharaman, has unveiled a major overhaul of India’s indirect tax system. This new structure introduces a simplified two-rate framework of 5% and 18%, with a special 40% rate for select luxury and sin goods. Set to take effect on September 22, the changes aim to streamline tax administration and enhance clarity in classifications, coinciding with the festive shopping season. Notably, essential items like all Indian breads and certain health insurance policies will now be exempt from the Goods and Services Tax (GST).
Key Changes in Tax Rates
The revised GST rates will eliminate the previous 12% and 28% slabs, significantly impacting various sectors. From September 22, essential food items such as paneer, ghee, and namkeen will either attract a 5% tax or be completely tax-free. Daily consumer products, including hair oil, shampoos, and toothbrushes, will now fall under the 5% category. Additionally, white goods like refrigerators, air conditioners, and televisions will see a reduction in tax from 28% to 18%. The new tax structure also benefits the automobile industry, with small cars now taxed at 18% instead of the previous 29%, while larger vehicles will incur a 40% GST, down from 50%. Electric vehicles will maintain their favorable 5% tax rate.
Winners of the GST Rate Cuts
Several products stand to benefit significantly from the new GST rates. Items such as diabetic foods, jams, pasta, and cheese will see their tax reduced from 12% to 5%. Other products, including various sugars and cocoa products, will also experience a drop in tax rates. Additionally, kitchenware, baby napkins, and certain agricultural machinery will see their GST reduced to 5%. The automobile sector, particularly manufacturers like Maruti and Toyota, is expected to gain from these changes, as luxury vehicles will now be more accessible due to the lowered effective tax rate. Electric vehicle manufacturers, including Tata Motors and Mahindra & Mahindra, will continue to benefit from the unchanged 5% GST rate.
Losers of the GST Rate Rationalization
While many products will benefit from the new tax structure, some sectors will face increased costs. Clothing and accessories priced above Rs 2,500 will see their GST rise from 12% to 18%, which could impact international retailers such as Marks and Spencer and Zara. Additionally, coal taxation will increase to 18% from the previous 5%, and carbonated beverages produced by major companies like PepsiCo and Coca-Cola will now be subject to a 40% tax rate. These changes may lead to higher prices for consumers in these categories, reflecting the broader implications of the GST restructuring.
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