New Delhi: The first day of goods and services tax (GST) witnessed an inevitable blackout in sales of manufactured items such as cars and refrigerators and retailers moderating their pre-GST discounts on commodities like apparel and watches while customers bombarded shopkeepers with questions on the tax’s effect on their bills.
Traders were busy till Friday night clearing pre-GST stocks and were slow in building up new stock, which could now take a few days to gather momentum as companies take time to assess the impact of the new indirect tax system and advise their vendors. Businesses have to brace for a dip in revenue in the July-September quarter as a part of the sales that should have happened in the current quarter had shifted to the previous quarter due to the pre-GST discounts that coincided with the summer end-of-season sales.
“The blackout period in sales could vary from two days to a week depending on the manufacturer. The real impact will be known only after a couple of days. We have to wait and watch,” said R. Muralidharan, senior director, Deloitte in India.
An executive at a car dealer in south Delhi said the revised price list of cars and insurance premium inclusive of tax are yet to come. This person, who asked not to be identified, said that as a result the dealer was not able to make a sale on Saturday (the invoice could not be printed). Besides, the company is still updating its systems, the executive added.
GST’s impact on customers is different depending on the product or service consumed. Here is a look at the impact on some common transactions:
Taking a loan
Banks have informed their customers that they will be charged 18% GST compared to the earlier 15% service tax on the processing fee and other charges they levy for providing loans.
Going for a movie
Movie tickets above Rs100 will attract 28% GST compared to the earlier 15% service tax levied by the central government and state level luxury tax that ranged from 30%-110% across states. Wherever the combined rate earlier was more than the 28% GST, tickets will become cheaper and where it was lower, movie tickets will get expensive. Punjab levied no entertainment tax earlier, UP levied 60% and Jharkhand 110%, according to ClearTax.com, a tax service provider.
However, if local bodies decide to levy a tax on movie tickets to raise resources for their needs, ticket prices could change accordingly in that area. Many states have plans to let their local bodies to levy taxes on movie tickets. Movie tickets priced below Rs100 is taxed at 18%.
Eating out will attract lesser tax. Supply of non-alcoholic food and drinks at restaurants-air-conditioned as well as non-air conditioned ones-used to be taxed at 20.5% including service tax and state value added tax (VAT). Under GST, the same service by air conditioned eateries will be taxed at 18% and non-air-conditioned ones at 12%. However, eating out at a five star hotel will be taxed at a higher 28%.
Tax burden on small cars has come down. Maruti Suzuki India Ltd has slashed prices of its models by up to 3% with immediate effect in order to pass on the benefit of reduced tax burden to customers. “The rate of reduction varies across locations depending on the VAT rates applicable prior to GST,” stated the company. Archit Gupta, CEO and founder, ClearTax.com said GST will benefit small car buyers while mid-sized car buyers will face slightly higher tax incidence. “Car insurance cost will rise by three percentage points from 15% to 18%,” said Gupta.
Buying a house
There is no change in the taxation of buying a fully constructed house. However, buying an under-construction house taxed at 12% GST may see some reduction in the tax burden since builders will be able to take full credit for the taxes paid on materials, unlike earlier. Earlier, under construction property used to attract 5-6% service tax and VAT which varied from 1-5% across states.