With the Goods and Services Tax (GST) set for rollout in a month, retailers of white goods and electronics are pushing to clear stocks, by offering a range of exciting discounts to potential buyers. As much as 40 per cent discounts on refrigerators, Air conditioners, washing machines, TV sets and other items has been announced by quite a few retail chains, who are looking to empty their inventories and minimize any losses that might come their way before July 1.
Worried by the inclination of traders and distributors halting stock procurement to clear the current records, electronic brands like Samsung, Videocon and Panasonic have announced promotional offers including discounts and extended warranties to attract consumers.
Retailers want to settle their entire stock as they cannot bear the load of the remaining 40 per cent central GST which will not be credited to them on unsold record.”
Big retailers expect heavy losses in early July, as they struggle to clear stocks by offering discounts. The report said that some of the biggest retail chains in the country have as much as Rs 100 crore assets of old records that they need to clear, before the GST rolls out in July. Now the companies are losing margins to clear their stocks. After the July 1 rollout, the prices of electronics are expected to go up by 3 to 5%, due to increase in taxation. Some of the retail chains that are proposing stock clearance sales include Vijay Sales and Kohinoor in Mumbai.
Presently, the average VAT rate on most of the household appliances is charged around 11-12.5% in most of the states. Excise duty is charged at the rate of 12.5% on the household electronic appliances. An average total tax at the rate of around 25-26% on such goods (including CST and other local taxes)
Fearing higher GST rates on wires, cables & electronic components could have a crippling outcome on the manufacturers, industry associations have claimed lower GST rate of 18 per cent for these key products. Even though the fact that current effective tax rate for these products works out to be 18.12%, under GST they will be taxed at 28%.
Handlooms used in the handicraft industry are the only machinery charged at NIL rate of tax under GST.
Most of the electrical machinery are charged tax at a similar rate to the rate declared under GST. It is expected that the prices are going to stay neutral for the end consumer of the above electrical machinery. Although the manufacturers using electrical machinery will benefit from the availability of input tax credit on the services used which was not available under VAT.
The rate for every single household electronic appliance like the fridge, washing machine, vacuum cleaner etc. is fixed at the rate of 28% under GST.
It is expected that the increase in the tax burden by 2-3% under GST would be passed on to the final consumer. Placement of the basic appliances such as fridge and washing machine under 28% slab shows that electronic appliances are still considered as a luxury by our government.
Manufacturers of such household electronic appliances like Samsung, Godrej, Voltas etc. may not be able to provide any benefit of GST to the end consumer due to the tax rate of 28%. Explanations are also mandatory for the dealing of the current tax exemptions or deductions provided by the different states.
Manufacturers in Mumbai would be the only one’s getting relief under GST as they are charged octroi at the rate of 5% after the other taxes (average 25-26%) on household electronic appliances.
GST effect on consumer electronics
Currently tax of around 13.5% is charged on smartphones, but with GST, it will come down to 12%. This will make smartphones a bit cheaper than they are at present. The machineries used for making smartphones are also categorized in the 12% price group.
Cameras, Speakers, Monitors, Television
A DSLR camera, TV, speakers, computers and monitors will now be charged a tax of 28%, making them a bit more expensive. Even laptops fall under the same slab, and their prices are also set to go up slightly.
All electronics appliances, such as washing machines, refrigerators, vacuum cleaners, shavers, trimmers, dishwashers, water heater, mixers, toasters, weighing machines are categorized under 28% GST slab, and their prices are set to become dearer.
The rate of GST on raw materials used for cables and wires is fixed at 18 percent. “Charging higher rates on end products is absolutely unfounded. The cable and wires industries is labour intensive and already reeling under tremendous pressure due to power sector woes and operating at less than 50 percent of its installed capacity. Hence it will not be able to bare the differential tax burden of 10 percent on its finished goods,” said Mohan Gurnani, chairman, The Council for the at Massachusetts Institute of Technology.
“Different rates of GST for products will end into huge returns leakage and subjecting the whole industry at 28 percent will shoot up the capital cost for the industries as well as end users,” added Gurnani.