GST Rate Changes: What Gets Costlier, What Gets Cheaper

The 47th meeting of the Goods and Services Tax Council saw rates on several goods and services being hiked. The rate hikes come in an environment where inflation is high and could raise prices across these select items.

"Several goods and services will cost more from July 18 with the GST Council approving an increase in rates to address inverted duty structures and withdrawing some exemptions," said KR Choksey Research in a report on Thursday. The rate changes, according to Finance Minister Nirmala Sitharaman, are intended to make up for the "inefficiencies" in the value chain.

Goods Being Taxed At A Higher Rate: From 12% To 18%

• Printing, writing or drawing ink.

• Knives with cutting blades, paper knives, pencil sharpeners and blades, spoons, forks, ladles, skimmers, cake-servers, etc.

• Power driven pumps.

• Machines for cleaning, sorting or grading, seed, grain pulses; machinery used in milling industry.

• Machines for cleaning, sorting or grading eggs, fruit or other agricultural produce and its parts, Milking machines and dairy machinery.

• LED lamps, lights and fixtures.

• Drawing and marking out instruments.

• Tetra paks.

Goods Being Taxed At A Higher Rate: From 5% To 12%

• Solar Water Heater and system.

• Prepared/finished leather/chamois leather/composition leathers.

Services Being Taxed At A Higher Rate: From 12% To 18%

• Services supplied by foreman to chit fund.

• Job work in relation to processing of hides, skins and leather.

• Job work in relation to manufacture of leather goods and footwear.

• Job work in relation to manufacture of clay bricks.

• Works contract for roads, bridges, railways, metro, effluent treatment plant, crematorium, etc.

• Works contract supplied to central and state governments, local authorities.

Services Being Taxed At A Higher Rate: From 5% To 12%

• Works contract supplied to central and state governments, union territories and local authorities involving predominantly earthwork and sub-contracts thereof.

Other Rate Changes

• GST rate on cut and polished diamonds moves from 0.25% to 1.5%.

Inflation Concerns

Aditi Nayar, chief economist at ICRA, also said any rate rationalisation to boost state revenues at the brink of the end the GST compensation era, triggers fears of higher prices, at a time when high inflation already poses a concern. The moves may shift consumer preferences towards branded items, and level the playing field between branded and unbranded items, she added.

Yuvika Singhal, economist at QuantEco Research, agreed.

While the focus of the GST Council has been on rationalising rates and rectifying inverted duty structure, the wide-ranging hike in rate on several items of household consumption is bound to add another leg to the ongoing inflation run-up, Singhal said.

Specifically, with unbranded wheat and rice, several dairy items, honey, jaggery, puffed rice, among others, now attracting GST at the lowest slab of 5%, is bound to add to food inflation and perhaps marginally to inflation expectations, according to Singhal.

The inflation impact of GST rate rationalisation undoubtedly will be more pronounced on lower income households. Typically, the impact of GST rate hikes is seen to be captured in CPI inflation with almost immediate effect, expected to reflect in prints for July and August this time, Singhal said.

Also Read: The Complete List Of GST Rate Changes