GST RATE CUTS TO BENEFIT MANGO PEOPLE

The Government has time to time notified many tax reductions that are targeted to provide enormous relief to the public. These reductions are given to push the economic growth which has been hitting a new low in the current fiscal. Further, more rationalisations will be needed in the backdrop of aftermath of the pandemic outbreak of covid-19. Sectoral tax reductions are expected to push the domestic sentiments resulting in stronger domestic demand and also help the Indian companies to sell their products to Indian buyers at a competitive rate with the global giants. This not only gives the strong support to Indian companies but also help the government to control the import deficit.

Let us now look at the sectors which are giving an immediate tax arbitrage to the consumers.

Indian aviation sector comes in the top 5 largest markets in the world which contribute almost $ 75 billion to the Indian GDP. To give the boost to the industry the government reduces the tax rate by 13% with the availability of full tax credit for the Aircraft MRO services (maintenance, repair, overhaul). This will not only reduce the working capital requirement in the form of interest cost, but this will also increase the job requirement in this sector as Indain avation sector fall in top emerging markets.

Indian tourism and hospitality industry have been touted as one of the key drivers of the economy, given the rise of an ambitiously expanding middle class and increased disposable income of the young population of the country. Currently, it accounts for 9.2 % of the country’s GDP.

The government has given tax breaks in the hotel stays to make it more competitive to the consumer. Earlier a hotel charging in the slab of INR 2501 – 7,500 per unit per day was taxed at 18% but now this rate has been slashed to 12% and for the slab of INR 7,501 and above rate was 28% which is the highest permissible GST rate at present but now it is 18% straightaway providing a tax reduction of 6% and 10% respectively.

The demand for lower tax slabs has been a long-standing demand from the tourism industry, which has argued that India's tax rates are significantly higher than those of its neighboring nations, so many tourists preferred to avoid India as a destination. This would rationalize the cost of accommodation for luxury rooms as well as mid-segment hotels, the main benefit of this change will be more apparently seen in Tier I metropolitan cities like Hyderabad, Bengaluru, Delhi, Mumbai, Chennai, Kolkata as against tier III cities. Five-star & four-star chains like The Oberoi group, ITC hotels, The Imperial, The Lalit, Radisson, lemon tree and Crowne Plaza would see an immediate fall in tax cost to consumers, which would pump up demand for such premier properties.

The second major relief announced by the Modi government is for outdoor catering services that come in the same service line i.e. hospitality industry. Wishes of many hoteliers from across the nation have now become a reality as the GST rate on indoor and outdoor catering services which is not in the premise of the restaurant, having a daily tariff of a unit of accommodation upto INR 7,501 is reduced to 5% from the current rate of 18%. However, no input tax credit is available against the rate of 5% and consequently resulting in the cascading effect of taxes. So, for people wishing to splurge on weddings, birthday parties and other events it is the right time to plan but be cautious as the rate has been reduced only for outdoor catering outside the premise of the restaurants. For catering inside the restaurant, there are no alterations and current tax rates need to be followed.

Both the above changes have given massive tax savings to the hospitality sector, which impacts the tax collection on an immediate basis. The government should hope that revenue buoyancy shall play in and push the demand so as to cover the effect of incremental revenue loss.

But we are currently witnessing the impact of the pandemic of COVID-19 in India, due to which the Government of India declared a three-weeks nationwide lockdown till April 14, 2020. Further, tourism has been and will remain widely during the time till a complete overall the pandemic is achieved. This will cost the Indian hospitality industry hugely.

Some other tax reduction which is notified by the Government is in relation to job work services on a diamond. Currently, the GST rate on these job work services is 5% which now slashed to 1.5%. This provides the much-needed drift to the diamond industry which has been battering with blockage of working capital. So, now the diamantaires would get encouraged to outsource to smaller units doing job work. This may also beneficial for the economy and the public by generating more employment opportunities. Also, this change may marginally have an indirect effect on cost reduction for jewelers. However, it is not expected to be a substantial one for the consumers to experience.

There were demands pouring in from various sectors like biscuits and automobiles to reduce tax rates in the wake of an economic slowdown. The urge of the Biscuit Industry has been left unheard and for automobile industry government has provided partial benefit. The only relief offered to automobile producers was a reduction in the cess on large passenger vehicles that can carry 10 to 13 persons. The cess on such vehicles is reduced from 15% to 1% for petrol vehicles and 3% for diesel vehicles of certain specifications. The industry has to find its own balance in the wake of the rejection of a proposal for reduced taxes. The Automobile sector is facing a slowdown since the beginning of the financial year 2019 which comes in the form of a cut-off of jobs and now due to pandemic which spread in the world economy will detrimentally affect the automobile sector.

These rate reductions and the exemption will ultimately benefit the customer as in the transactional tax regime, the ultimate tax is borne by the end consumer. These GST rate reductions will make the market more competitive, encourage make in India, attracting the flow of investments. But some more bold steps need to be taken. We urge the government to announce relief packages for the different sectors as during the current situation everyone is reeling due to the spread of covid-19.