GST Reforms May Cut Rates on 11 of the 30 Most Consumed Items: Report

The new Goods and Services Tax (GST) structure will advantage 11 of the top 30 consumption categories, accounting for almost one-third of a typical consumer's monthly expenses, a report released on Thursday finds.

These goods range from staple milk products, non-essential purchases like automobiles and beauty treatments, to rapidly expanding categories such as processed foods.

"Rough estimates place the simple average rate of GST on these top 30 consumption items declining from 11 per cent to 9 per cent under the new regime," Crisil Ratings said in the report.

The lower tax burden is likely to increase the purchasing power of households, especially those from lower- and middle-income groups, as most food and household items will now be charged either 0 per cent or 5 per cent GST.

In some categories like clothing, footwear and two-wheelers, the tax relief is available only for items of lower value. Added to the income tax relief that was announced in the last budget, this is expected to provide an additional boost to consumer demand.

The report emphasized that the magnitude of the impact will also be determined by the amount of the tax cut producers transfer to consumers. Citing global trends, it further added that "the pass-through of tax changes varies significantly across countries."

"Also, the adjustment may take time. For India, we are expecting the effect of GST reductions on consumption to unfold over this fiscal and the next," the report said.

The GST rate rationalisation will be hoped to yield two main benefits: simplification of the structure of tax, thus reducing compliance and facilitating formalisation, and spurring consumption by bringing down mass-market goods' prices.

Among the key changes, GST rates on all types of cars have been reduced. The tax on small small cars has been lowered from 29 per cent to 18 per cent, while luxury cars will now be taxed at 40 per cent instead of 50 per cent, with the compensation cess eliminated.

Consequently, average prices are expected to go down by 8–9 per cent for small cars, 3.5 per cent for mid-size SUVs, and 6.7 per cent for luxury SUVs, the report approximated.