Consumer Durables May be Hard Hit by GST but Companies See Plenty of Positives

Consumer durables sector is rather gloomy about not getting its preferred 18% tax brackets, industry insiders are not too ruffled about the high tax rate, expecting the GST to make up for lost earnings by streamlining the tax collection process

Confusion has persisted up to present day among experts as to the exact impact of GST on the consumer durables industry. As quality of life indicators go up and income levels rise, consumer durables industry is becoming a rising star of the Indian economy. Naturally, it would be unfortunate for the GST to throw a spanner in the works, so to speak, and cause a short term disruption that in the market.

While there is no real consensus, most estimates agree that consumer durables will be charged a higher rate compared with the erstwhile tax regime. AC and refrigerator segments will be some of the hardest hit. A GST rate of 28% for the two implies that companies like LG, Samsung, Daikin, Whirlpool, Voltas etc. will have to, quite possibly, take a rain check on their expansion plans and try to streamline their processes to ensure that the tax burden on the consumer is kept to a minimum. Television sets, dishwashers, washing machines, freezers, water heaters, printers and most types of furniture are some of the other items that will bear the 28% tax rate. Experts at TechSci Research predict that the prices of these goods will go up by around 3%-5%. The tussle between the consumer durables industry and the GST Council, which impacted the taxation seems to have been on nomenclature. While the industry argued that the aforementioned items, especially TVs, refrigerators and ACs were ‘normal goods’ and thus eligible for the 18% tax rate, the GST Council decided that they were luxury goods and decided to tax them at 28%.

In spite of the somewhat gloomy forecast, many within the industry itself seem to take it within their stride. Firstly, the GST input tax credit would make life somewhat easier for the industry. Given that there will be a lot of input tax being paid by companies given the large number of input goods that go into the production of a consumer durable item, the input tax credit will be something of a relief for many in the industry. However, the Indian Finance Minister has said that he doesn’t believe that the tax rates would put any significant inflationary pressures on the economy. The industry too seems to be broadcasting a positive sentiment. According to Godrej Appliances Business Head and Executive VP Kamal Nandi, “In the short run, there would be some resistance or postponement, but in the long run given that it is a very structured tax system, it would propel growth”.

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