• CRISIL Research Impact Note
  • Industry Research
  • Value Added Tax
  • Tax Rates
  • Consumption products
  • GST
May 20, 2017

Input tax credit to benefit goods, offset rise in tax on services

GST has moved a step closer to reality with clarity on tax rates for most goods and services. Addressing the concerns raised by industry participants and associations, the GST Council has managed to minimise the transitional impact on most sectors. 

For most manufacturing goods, the finalised GST rates are largely in line with the pre-GST effective tax incidences, so the taxation impact is largely neutral.

In sectors such as consumer durables, construction material and fast-moving consumer goods (FMCG), the GST rates will be marginally different. However, for players having a higher incidence of CST at present, the saving under the new tax regime will be to the tune of 2%. For segments under FMCG, the effective tax saving will differ across states due to a wide variation in value added tax (VAT) rates. The tax saving will be relatively higher in automobiles sector, specifically sports utility vehicles (SUVs), as the tax incidence will reduce from the current effective tax rate of 55.3% to 43% (28% GST + 15% cess). For all other segments of automobiles, tax incidence is marginally better compared with the previous effective rates.

 The rates on many services are also largely in line with the current effective incidences, taking into account the pre-GST abatements, barring a few services.