GST reforms lower rates on 11 out of 30 top consumables

New Delhi: The new Goods and Services Tax (GST) rates will benefit 11 of the top 30 consumption items and a third of an average consumer’s monthly expenditure, a report said on Thursday. These 11 items include essential milk products, discretionary products (automobiles, beauty services) and goods, seeing a surge in demand over the past few years (processed food).

"Rough calculations indicate the simple average GST rate based on these top 30 consumption items falls from 11 per cent to 9 per cent under the new regime," Crisil Ratings said in its report.

The move is likely to improve purchasing power, especially for low-middle income segments, as the consumption-weighted average GST rate is lower in majority of food and household items and will attract either 0 per cent or a 5 tax rate. Additionally, for some categories, the GST rates have been pared for only lower-value items (clothing, footwear, two-wheelers). This complements the Income-Tax relief announced in the budget for this segment and will support demand. According to the report, the change in consumption will depend on the degree to which producers pass the rate cuts to consumers.

Global evidence confirms that the pass-through of tax changes varies significantly across countries. "Furthermore, the adjustment can take time. For India, we expect the impact of GST cuts on consumption to play out over this fiscal and the next," the report stated.

The recent GST rationalisation is expected to deliver two major gains: A simplified rate structure that eases compliance and delivers a stronger push to formalisation, and an impetus to consumption as prices of mass consumption items decline.