Revised GST Rates: Boon Or Bane?

The everyday marketing has seen a shift due to the recent GST hikes on certain daily essentials. Some of the key items to have undergone price revisions include labelled food items, packaged food items weighing up to 25 Kg per pack or the retail packs. These have now become costlier. GST was exempted on these items prior to the revision, however now, there is a 5 per cent tax applied on them. Conclusively, it means that staples like packaged pulses, wheat, atta, rice etc are included under this revision. Likewise, curd, milk, paneer too, now, have a 5 per cent GST. There is an 18 per cent GST, in place of the previous 12 per cent on items like paper knives, pencil sharpeners, spoons, ladles, forks, skimmers etc. Further on, there is a 12 per cent GST over hotel rooms with tariff up to Rs 1,000/night which used to be exempted before. Hospital rooms with a rent of Rs. 5000/day (excluding ICU) will incur a GST of 5 per cent. Crypto assets were exempted from any kind of GST related discussions.

Manish Bandlish, Managing Director, Mother Dairy Fruits & Vegetables said, “With impact of GST on certain product categories, we are revising the MRP of select pack sizes coming under the ambit of this new compliance.”

The price revision comes following the 47th GST meeting held last month, chaired by Finance Minister of India Nirmala Sitharaman. The meeting also resulted in the removal of duty inversion for goods wherever the input taxes were higher than the output taxes. Sitharaman referred to inefficiencies in the value chain, as a reason for this hike as a means to deal with it. She hopes to ease the burden on the tax payers in this value chain, which would be a potential impact pf rate rationalisation. Further, she said that the technology would deal with the inefficiencies, which would impact the revenue collection. "The Fitment Committee's suggestions before the GST Council were considered in full, and more or less, all of them have been accepted," Sitharaman said in a public statement. Officials said that Rs. 15,000 crore of revenue would be expected to be generated following the rate changes.

The GST rate changes come in the face of revenue stream getting affected due to the pandemic. The compensation mechanism with regard to GST implementation for five years for the states ended in June and was not extended even after around 12 states asked for it. Hence, rate rationalisation became important. Also, revenue leakages were being reported as a result of the provision where taxes on pre-packaged food items were exempted. So, items were being sold by certain companies under brand names which weren’t registered and hence, were exempted from the tax.

The rate cuts introduced by GST within the first year of its inception resulted in the loss of approximately Rs. 70,000 crores in a year.

As per the previous Chief Economic Advisor of the GST Committee, Arvind Subramanian, 15-15.5 per cent should have been the Centre and States combined Revenue Neutral Rate change. At that time, the 2-rate structure was in place which included a standard rate which was closer to RNR and a sin rate or a demerit rate, which was higher. This was followed by a 2019 report by RBI which stated that the effective weighted average GST rate came down to 11.6 per cent from 14.4 per cent at the beginning, due to the rate rationalisation at that time. The latest data shows that a 27.2 per cent pan India average shortfall between post settlement gross SGST revenue and protected revenue was recorded in 2021-2022 as compared to the 37.9 per cent recorded in 2020-2021.

Angshu Malick, CEO, Adani Wilmar said, “Firstly, a lot of companies weren’t paying GST because they weren’t registered. From a consumer’s point of view, they aren’t much aware of which brands are registered or not. This led to a lack of level playing field. To invest in food and the latest technology to develop better packing lines amongst other things, there should be a level playing field, which will now be created through this GST revision. Secondly, hardly 10% of staples are branded and packed, like atta, rice, dal, besan, etc. as opposed to the remaining 90%. So, that 90% continues to enjoy tax benefits. From the price hike point of view, I do not think there is going to be much change in sales patterns since 90% of the market was always loose. Now, out of this 10% that was getting taxed, 60% were registered brands and 40% were unregistered. Now, these unregistered brands will have to pay GST.”

“It is very early to observe the changes in sales patterns since it’s only been a week. So, I do not think that consumers will have to pay a lot more, as has been projected. They’ll be paying almost same as before. But yes, at least now, the brands will have to be more conscious rather than what was happening before,” Mallick added.

As per industry experts, the impact on consumers as well as inflationary concerns is less. Office stationery and cutlery are not things which are bought every day and have a less CPI weight. The hotels with an increase in GST would result in an increase of 0.11 basis point, the LED lightings would result in an increase of 0.97 base points and items like milk and curd would lead to an increase of 0.47 basis points. Hence experts suggest that the CPI inflation would not be as much due to the revised prices.