From automobile to real estate and consumer goods: What will be the impact of GST

India is all set for its most ambitious reform in decades, which is expected to transform the world’s fastest growing major economy into a single market for the first time. The long-awaited Goods and Services Tax (GST) rolls out Saturday even as businesses complain they are ill-prepared for the massive changes about to ripple through India’s unwieldy $2 trillion economy. (Dibyangshu SARKAR / AFP)

The Goods and Services Tax (GST) has been termed a potential game changer, the single biggest tax reform in independent India, one that the government says is founded on the concept of “one nation, one market, one tax”.

The GST, according to the government, will be extremely beneficial to consumers, as it will bring down the price of goods and curb inflation. It is also said to reduce the delays in tax payments and ensure more stringent checks on the same.

What remains to be seen, however, is how the GST rates—from 5% to 28%—will affect various consumer-facing sectors of the Indian Economy. A look at some of these sectors and how GST will impact them.

AUTOMOBILE: Robust demand to drive away any near-term dips in car sales

GST adds to the challenges the sector has faced, from demonetisation and then implementation of more stringent emission norms. The passenger car segment is expected to see an overall reduction in tax outgo, with bigger cars and sport utility vehicles (SUV) benefiting from lower tax rates.

CEMENT: A marginal tax relief

Contrary to expectations of cement firms, which were hoping for an 18% GST rate, the sector has been categorised in the 28% slab. Despite that, cement makers will see some relief in tax payout as the effective tax rate for packaged cement is anyway 29-31%.

CONSTRUCTION, REAL STATE: Input cost credit to offset higher rate

So far, the construction sector, including real estate, has had an effective tax outgo of between 11% and 18%. Under GST, the entire works contract is charged 18% tax. However, the sector is likely to gain from the input tax credit that is available under GST rules.

CONSUMER GOODS: Anti-profiteering measures to keep a lid on gains

Packaged consumer goods makers’ sales growth will be hit in the near term as trade channels have cut purchases in the run-up to GST. Overall impact is seen as neutral as rates have been cut on mass consumption items and hiked on higher-end products.

JEWELLERS: No dent to demand

The GST rate on gold jewellery has been fixed at 3%, lower than expectations of a 5% rate. The new rate is close to the current 2%. Hence, it should not affect consumer buying dramatically.