Corporate India pitches for GST rate cut

Durable, automobile and real estate players have been lobbying hard for a tax cut, saying it will boost demand.

Illustration: Dominic Xavier/Rediff.com

Companies across sectors such as durables, automobiles and real estate have been lobbying hard for a Goods and Services Tax (GST) cut as the Narendra Modi-led National Democratic Alliance prepares for a second term in office.

Modi and his council of ministers were sworn in on Thursday in the presence of over 8,000 people at the Rashtrapati Bhawan.

Durable firms said the issue of rationalising the tax rate of products such as air conditioners and larger television sets, which sit in the 28 per cent tax bracket, has been on the government’s table for long.

“Since July last year, when most appliance and electronic products were moved from 28 per cent to 18 per cent, companies have been asking for ACs and larger TVs (above 32 inches) to be shifted too in terms of the GST rate,” said Kamal Nandi, business head and executive vice-president, Godrej Appliances, who is also the president of the Consumer Electronics and Appliances Manufacturers Association (CEAMA).

“ACs and TVs are not luxury items, but essential goods. It doesn’t make sense therefore to put them in the highest tax bracket.

"A tax cut will mean that prices will come down, boosting demand,” he said.

A 10 percentage point decline in the GST rate on ACs will see a net reduction of 7-8 per cent in terms of prices, sector experts said, which is a relief for consumers at a time when new energy labeling norms have pushed up prices by at least Rs 5,000 per unit.

The Society of Indian Automobile Manufacturers (Siam), too, has made a representation to the government to cut the GST rate on commercial and passenger vehicles from the current 28 per cent to 18 per cent, Rajan Wadhera, president, Siam, told reporters on Wednesday.

All commercial and passenger vehicles, including cars and two-wheelers attract a standard GST of 28 per cent.

Depending on the engine size, vehicle length and fuel type, there is an additional cess of between 1 and 15 per cent levied on automobiles.

The request by Siam comes amid flagging sales and tepid demand in the auto market.

Passenger vehicle sales in India grew 3.2 per cent in FY19, the slowest in four years.

The slowdown worsened in April with sales across all segments seeing a sharp year-on-year decline.

Siam has also forecast a growth of 3-5 per cent only for FY20, building a case for a sharp GST rate cut, said experts.

Real estate players, on the other hand, argue that the government should consider a uniform GST rate across price segments to boost sales.

Currently, GST for houses up to Rs 45 lakh has been reduced to 1 per cent from 8 per cent earlier in a fillip to affordable housing.

While other housing segments attract a GST of 5 per cent from 12 per cent earlier.

“The government should reduce the GST for houses up to Rs 75 lakh to 1 per cent, so that a large portion of city dwellers can benefit too,” said J C Sharma, vice-chairman, Sobha Developers.

A recent Anarock report said of the total 673,000 units of unsold housing inventory across cities in India, nearly 85,000 units are ready-to-move-in, with 60 per cent of these in the under Rs 80-lakh bracket.

A GST rate cut then will push up sales, bringing down inventory, said experts.

Ramesh Nair, chief executive officer of property consultancy JLL, said the government should look into the issue of input tax credit, which has been eliminated when GST was slashed to 1 per cent and 5 per cent, respectively, for affordable and other housing segments. Nair said with input tax credit removed there was a cost implication for developers, nullifying the benefits of a lower GST rate.