The Goods and Service Tax (GST) could boost consumption by lowering taxes, which are currently as high as 27 per cent.
The Goods and Service Tax (GST) could boost consumption by lowering taxes, which are currently as high as 27 per cent. The standard rate under GST is expected to be around 22 per cent and it will save companies a lot of cost in logistics.
However, with the balance sheets of many companies under stress, it has raised questions whether the industry will fully pass on tax benefits to consumers or pocket it.
CII president Dr Naushad Forbes, however, believes that competition will force companies to pass on the benefit to consumers and not to pocket it. “It will take only one company to decide that it will expand market share by passing the benefit of the tax saving to consumers and others will have to follow,” said Dr Forbes.
He said that the best way to control one private firm is another private firm, so competition will take care that GST benefits are passed.
“So instead of second guessing what will happen (after the GST comes in being), let the market play its role. I think there is sufficient market competition in the market. It is being said that many companies are running at a capacity utilisation of 70 per cent and some companies want to expand their market share and capacity utilisation by cutting prices,” said the CII president.
In the medium term, Crisil chief economist D.K. Joshi believes companies will have to pass on the benefit to consumers. “GST implementation will take at least one year to get implemented and by that time, the balance sheets may not remain stretched. The benefit of GST will definitely be visible in the due course, if not immediately. They will have to pass on benefits due to competition," said Dr Joshi.
However, rating agency ICRA said that it expects companies like Asian Paints, Berger Paints, Kansai Nerolac and Pidilite Industries among others to retain some of the benefits of lower taxes due to their branding strengths.