GST rates are in line with expectations: Kotak Research

The GST rates for 1,211 products do not show any major deviation from the current effective tax rates except in the case of a few consumer products. The GST council has tried to mitigate the inflationary impact of GST by keeping rates for most items near or below the current effective tax rate. Also, it would be best to assume that most rate changes will be passed on to consumers. The council will decide on the balance rates and the GST rate for services on May 20.

 

The council has not decided upon the rates for categories such as ‘bidis’, biscuits, footwear, precious metals & jewelry, textiles. Key categories where rates will be higher than the present effective tax rate are two-wheelers, small cars, cement, fruit juices and chocolates. Most primary food articles like cereals, meat, fish and vegetables have been kept in 0-5% tax bracket as expected.

 

The GST council has fixed a 28% GST rate for passenger vehicles including two-wheelers while mid-sized cars and SUVs will attract further cess. GST rates for commercial vehicles and tractors are at 28% and 12%, in-line with existing indirect tax rates.

 

GST rates for cement are also at the highest slab of 28%, which is higher than the current 23-26% rates. The same rate is applicable for tiles, ceramics and sanitary-ware versus the current tax rate of 18-24%. The rate for consumer durables such as ACs, fans, refrigerators is at 28%, on expected lines.

 

In our view, GST rates in most cases are in line with the prior rates / expectations set by the government in previous briefings. As highlighted before, the anti-profiteering clause may prevent companies from retaining the benefit of lower GST rates versus current effective tax rates. Automobile and cement companies will likely pass on the higher taxes to consumers. Lastly, we do not see any major impact of the new tax rates on inflation. Excerpts from a Kotak Institutional Securities report

 

Sanjeev Prasad is executive director and co-head, Kotak Institutional Equities


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