The GST Council on Thursday arrived at a consensus on the rate structure for the country's biggest tax reform. The council has set four slabs for the rates - 5 percent, 12 percent, 18 percent and 28 percent.
According to the government, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. This has been done to keep inflation under check.
The lowest rate of 5 percent would be for common use items while 12 percent and 18 percent will be two standard rates.
The highest tax slab of 28 percent will be applicable to items which are currently taxed at 30-31 percent (excise duty plus VAT).
Moreover, luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.
So how are the prices of items going to get affected? This is largely a guess work as of now.
Anil Talreja, partner with Deloitte India, says it is difficult how prices will move. Some of the luxury items that are taxed at 40 percent now will fall in the 28 percent bracket. But it is not as simple as it seems, he says.
"Once the GST kicks in, excise becomes creditable. That should ideally bring the prices down. But for that the manufacturer should be ready to pass on the benefit," he says.
The new structure is a slightly tweaked version of the slabs the Centre had proposed in the earlier GST meeting. The slabs proposed were 6-26 percent. The government had estimated which all items were to be affected and how. Based on those estimates, here is a guess as to which all items are likely to become pricier and cheaper:
1) Items like chicken and coconut oil which currently have a tax incidence of 4 percent will be taxed at 5 percent under the GST regime. So these are likely to be pricier.
2) The tax burden on refined oil, mustard oil and groundnut oil will remain at the current 5 percent. But still there is room for reduction as the manufacturer gets the excise credits.
3) Other kitchen staples such as turmeric, jeera will be taxed at 5 percent as against 3 percent. The tax on dhania, black pepper and oil seeds will be 5 percent.
4) TVs, air conditioners, washing machines, inverters, refrigerators, electric fans and cooking appliances may become cheaper with the incidence of taxes on them declining from 29 percent to 28 percent.
5) Perfumes, shaving cream, powder, hair oil, shampoo, soap, and other toiletry items likely to become cheaper as they too will be taxed at 28 percent, lower than the present 29 percent.
6) Gas stove, gas burner, mosquito repellent and insecticide may, however, become expensive as they are currently taxed at 25 percent, lower than the peak rate of 28 percent under GST.
As per earlier estimates, under the 4-slab structure proposed by the government, the items which are currently taxed between 3 percent and 9 percent will fall in the 6 percent bracket; those in the 9-15 percent range will come under 12 percent rate; products now attracting 15-21 percent would get 18 percent levy and those above 21 percent would be taxed at the peak rate of 26 percent.
However, it has to be remembered that the government had tweaked this proposal to take into account the state governments' concerns. The committee of secretaries is likely to shuffle the items in each basket. The impact will also change accordingly.