(English) GST Rates for White Goods
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As the nation prepared to embrace GST last month, it had almost seemed as if Diwali had arrived early. With attractive discounts being shelled out by home appliance stores across the country, household consumers did make the most of the opportunity. However, the happiness was bound to fizzle out once the GST regime dawned, as white goods have been categorised under the highest GST tax rate slab of 28%.
Taxes we paid earlier
Earlier, white goods – home appliances and consumer durables – attracted excise duty of 12.5% and a VAT of 12.5% to 14.5% in most states across the country. In other words, as a household consumer, we used to pay about 26.6% to 28.8% tax on white goods, taking into account the cascading nature of taxes. In certain cities such as Mumbai, the tax was higher still, as an additional octroi of 5% was charged on consumer goods, increasing the price for the end user.
The cascading nature of taxes was a burden on the working capital of all players across the chain – dealers and retailers. VAT was levied on a cost, which included the excise component and the brunt of this double taxation was borne both by the dealers and finally by the end consumer.
Also, previously, there was a demarcation between big and small home appliances. While bigger appliances such as television, air conditioner, refrigerator and washing machine were conventionally placed at a higher VAT rate in most states; smaller home appliances such as electric irons, mixer grinders and juicers were placed at lower VAT rates.
Under GST, all white goods have been rated at 28%. Comparing the pre-GST rates with the post-GST rates, there is indeed a slight increase in the tax by a few percentage points of 2 to 3% – which should not really affect the appliance buying trends overall. However, the high GST rate hasn’t gone down well with small appliance makers – their primary grievance being that electric irons, mixer grinders, juicers and air coolers have now been equated with other bigger white goods, such as refrigerators and air conditioners.
Again, if we consider the nature of goods and services which have been categorised under the various tax rates – the highest rate of 28% is being levied on luxury products. This too has emerged as a point of contention from several quarters who feel that products such as refrigerators and washing machines, in this day and age are no longer luxury items, but rather necessities and could have been rated at 18%.
Thus, it was a given, that tax rates were anyway going to increase post GST. If that was the case, why was the need for white goods manufacturers to extend discounts – when anyway there should have been a natural demand to buy before GST sets in? Let’s try to demystify the same.
Why the discounts?
Apparently, the massive discounts being offered was primarily to clear pre-GST closing stocks, which otherwise retailers would need to sell in the GST era.
However, the main reason behind this behaviour was the problem of retailers not being able to claim full input tax credit against the excise they have paid on the closing stock, because mostly they would not have invoices with excise component. In such scenarios, the GST council has specified that against the CGST payable, the percentage of input tax credit will be 60% (as the white goods industry has been placed under the highest tax slab of 28%). At the same time, the council has also offered some relief, with respect to 100% credit being available for high-valued goods priced above INR 25,000, carrying the brand of the manufacturer. However, given the uncertainty of transition, the fear surrounding the anti-profiteering clause and the general apprehension surrounding the associated paperwork – it was most natural for retailers to want to liquidate their entire stock, to balance the load of the remaining 40% CGST, which they will be missing out on unsold inventory.
Thus, while discounts may continue to be on offer, well into the GST era, the time is not far when the pre-GST closing stock will be liquidated and white goods will be priced at normal rates – and at 28%. This is bound to affect demand, both in urban as well as rural markets. While the overall prices in cities, such as Mumbai may not increase as much, due to high octroi, which was being levied in the previous regime, prices are surely set to surge in states Karnataka, Andhra Pradesh and Madhya Pradesh, though, where the previous state levies are low.
However, a major breakthrough will be the fact – that taxes will no longer cascade. Dealers across the chain will levy GST on the transaction value, which eliminates tax-on-tax. So even though a CGST of 14% is higher compared to an excise duty of 12.5%, the full availability of the former, will prove to be game-changer, as the benefit can now be fully passed on to the end consumer. Thus, while tax rates have gone up for the time-being, the effect is bound to settle down after a point, bringing down the overall prices of white goods.
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Author: Pramit Pratim GhoshPramit, who has been with Tally since May 2012, is an integral part of the digital content team. As a member of Tally’s GST centre of excellence, he has written blogs on GST law, impact and opinions - for customer, tax practitioner and student audiences, as well as on generic themes such as - automation, accounting, inventory, business efficiency - for business owners.
Pramit Pratim Ghosh
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