As GST is on edge of applicability from 1st July 2017, everyone just try to analyse its impacts on various goods.
A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.
The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%.
Anti Profiteering Clause
The GST legislation contains an anti-profiteering clause to ensure that industry passes on tax benefits to consumers by lowering prices where applicable.
Replacement of taxes
GST seeks to replace central taxes including central excise, service tax and cesses along with state taxes including value-added tax, purchase tax and entertainment tax by a single levy, thus creating a unified national market. Moreover, industry will be eligible for seamless input tax credit that should also drive down prices as tax embedding through imposition of tax on tax inflates the final price
In most consumer products, excise duty is applied on MRP (maximum retail price) less abatement of 30-35%. So, if MRP is 100, effective excise duty works out to 8-9%. When you add a standard VAT of around 13%, the effective rate works out to 21-22%.
One would hope that most of these products, which include most FMCG (fast-moving consumer goods) and consumer durables, would be subjected to 18% GST and not 28%. If not, it would increase the tax burden on consumers and intended benefits of GST in terms of lower prices and increased manufacturing would be difficult to realise.