MUMBAI:
Lower rates of GST
may not necessarily mean higher profits for Indian consumer firms,
while the converse is equally true for those selling in limited pockets.
The reason is a simple averaging of tax rates across all states instead
of weighted averages, which would have mapped sales volumes to levies
in the relevant states.
"On the surface, tax rates of
certain products would have seemingly come down compared to existing
rates under GST. But some companies may still have to increase prices,"
said Pratik Jain, National Leader —
Indirect Tax
at PwC India. "This is mainly because for some products, the bulk of
the sales take place in a few states where the current VAT may have been
lower."
Most products with a direct relationship between
GST rates and profits include highend consumer items mainly sold in Mumbai, New Delhi, Bengaluru, and Chennai.
The simple averaging of tax rates could affect products such as shower
gels, body washes, expensive paints, high-end refrigerators, washing
machines, LED lights, and costly cellphones.The converse is equally true
for many companies that sell about 60-80% of their products in two to
four states: These firms could see a jump in their profits even when tax
rates under GST are set to rise.
An email sent to the
Central Board of Excise and Customs (CBEC) and revenue secretary Hasmukh
Adhia, did not elicit any response until this report went for
publication.
LITTLE SCOPE According
to a top tax officer, it would have been virtually impossible for the
government to take weighted averages into consideration. "There is no
reliable
data that could have helped the government to
calculate weighted average of taxes paid by companies. Also, I doubt
even companies collect sales data of each product in each state," he
said.
Experts point out that in some way, this could also
impact the anti-profiteering clause under GST. "The government wants to
ensure that the introduction of GST does not lead to inflation. Hence,
it is keen to ensure that tax rate reductions are passed on to customers
in the form of lower prices and has, therefore, introduced the
anti-profiteering rules to keep
inflation under control," said MS Mani, senior director, Deloitte India.
Experts point out that in some instances, a handful of states imposing
higher taxes has also distorted the average tax rate, which in turn
influenced the GST rates.
The average rate was calculated
by adding prevailing tax rates across India, and then dividing the total
by the number of states and union territories.
People
close to the development said the change in tax rates could also lead to
increasing or decreasing inventory, as is evident in the case of
high-end mobile phones.
23 Jun 2017, 12:45 PM