Budget 2015: Getting consumer ready to absorb high rate of GST

Paving the way for implementation of Goods and Services Tax (GST) from April 1, 2016, finance minister Arun Jaitley has increased the rate of Service Tax (including education cess) to 14%. While this certainly impacts the consumers' wallet, it also prepares them to be able to absorb the high rate of GST that will come into force next year.

Commenting on the introduction of the long-pending GST, Sunil Duggal, chief executive officer, Dabur India Ltd, said the development is very rejuvenating for the industry. "However, the increase in Service Tax from 12.36% to 14% could have been avoided at this stage, especially with the advent of GST," he said.

While the definitive deadline for GST is reassuring, driving successful implementation will be critical to fast-track growth. This apart, removal of education cess on excise duties and broadening the tax base by shrinking the parallel economy are steps in the right direction feel industry experts.

Sachin Menon, COO - tax and head of indirect tax, KPMG in India, is of the view that higher budgetary allocation to states would further reduce the trust deficit between the centre and states and enable smooth introduction of GST. "The increase in service tax would be a precursor to introduction of GST, and would avoid the feeling of steep increase of taxes on service, on introduction of GST as the proposed rate under GST is 16% or more.

Service industries shall be geared to factor even a higher service tax cost next year."

Jaitley's increased focus on rural development, infrastructure and health are positive steps that would not just boost overall confidence, but also go a long way in generating employment. With initiatives empowering the Aam Aadmi coupled with income tax proposals, Jaitley said that the individual tax payer can now get exemptions of up to Rs4.4 lakh.

The initiatives, industry experts feel, would provide the much needed relief to the salary earners and put more money and more savings in the hands of the common man. This, coupled with the abolition of Wealth Tax, will go a long way in fuelling consumerism.

Saugata Gupta, managing director and CEO, Marico Ltd, said the budget's focus on broad-based growth will benefit the FMCG industry both in urban and rural markets. "Along with increased investments in MNREGA and social security, a firm road map for reduction of corporate taxes, ease of doing business and GST is very reassuring for the long-term balanced growth and augers well for the industry."

Vivek Gambhir, managing director, Godrej Consumer Products Ltd., said: "Proactive efforts are being made to drive demand and increase consumption. This will bring the fast moving consumer goods (FMCG) recovery back on track."

Reduction in the corporate tax rate from 30% to 25% over a four year time frame will help make India Inc more competitive, according to Abneesh Roy, associate director - institutional equities - research, Edelweiss Securities Ltd., and he is positive for most of FMCG companies which pay tax rate at the maximum marginal rate of 30%.

The Make in India movement also got a boost, especially players in the consumer durables/electronics sector with reduction of basic custom duty on imported raw material. "This will boost assembly and value-added manufacturing in the country. Reduction in the basic custom duty to Nil from 10% on back light unit module used in LED panel manufacturing and Organic LED TV, also reducing duty on magnetron used in microwave oven are welcome steps," said Anirudh Dhoot, director, Videocon.

Similarly, customs duties on certain inputs like metal parts, insulated wires and cables, refrigerators compressor parts, compounds used in catalytic converters, sulphuric acid for use in manufacture of fertilisers and compounds of video cameras have been reduced. This apart, excise duty has been restructured on certain goods such as wafers for use in the manufacture of integrated circuit (IC) modules for smart cards from 12% to 6%, inputs for use in the manufacture of LED lamps from 12% to 6%, specified raw materials for use in the manufacture of pacemakers to Nil, Solar water heater and system from 12.5% to Nil and Tablet computers from 12% to 2%.

The footwear industry, which has been battling for total removal of excise has received some relief. "Cutting excise duty by 6% on leather footwear priced more than Rs1000 a pair would be beneficial to leather manufacturers and many other brands in the footwear industry," said Harkirat Singh, MD, Woodland Worldwide.

Excise levy on cigarettes and the compounded levy scheme applicable to pan masala, gutkha and other tobacco products also changed. "A weighted average hike of around 16% in cigarettes is the fourth consecutive sharp increase. Accordingly, excise duty has been hiked by 25% for cigarettes below 65mm category while for other cigarette size the hike is by 15%," said Roy.

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