In a major relief for consumers, the Goods and Services Tax (GST) Council decided to slash tax rates on several consumer durables like televisions, air conditioners, refrigerators, washing machines, video games, trailers and inverters.
By Baishakhi Dutta
The decision of the GST Council to reduce GST rates on several items from 28 per cent to 18 per cent is being hailed by traders dealing in these items. According to the electronics industry, this tax reduction will not only boost sales, but also help customers as the benefit will be passed on to them in the form of price reductions of these items. The new rate of taxes on these items became applicable from July 27.
Relief for ACE players
The impact on the appliances and consumer electronics (ACE) industry will be the highest with the changes in the GST structure for appliances, making it a bonanza time for middle class buyers ahead of the festive season. While most industry players have welcomed this move, a few remain sceptical.
“The reduction in GST rates is definitely a step in the right direction; however, it is still a half measure that will have little impact,” says Rakesh Dugar, CMD, Mitashi Edutainment. GST rates have been reduced on washing machines and refrigerators but products like TVs above 68.58cm, which constitute almost 90 per cent of the market, as well as the entire air conditioner market are not included in the revised GST rate list. Duggar feels that while the move to cut the GST on televisions with small screens is welcome and will see TV makers pass on the price benefits quickly in that segment, it would have helped if the GST on larger TV screens was also lowered. It is a positive but small step in the right direction, and the government needs to widen the scope of this move to truly make an impact, he says.
Riya Kabra, general manager-commercials, Truvison, states that this move will certainly improve the penetration and affordability of these eproducts in the Tier 2 and Tier 3 markets. She adds, “This will also lead to easy access to technology, supporting a connected, dynamic lifestyle. The recent move to cut rates should help boost sales in the consumer durables segment.” Kabra is hopeful that the entire consumer durables bucket will see an 8-10 per cent surge in sales over the next eight months and the industry will start advertising aggressively.
Similar sentiments are shared by Vinit Agarwal, director-brand and marketing of Aisen. He believes that announcing this just before the festival season is a very good initiative by the government as it will help to improve sales, especially in the Tier 2 and Tier 3 locations. “I feel the consumer durables industry was struggling over the past five to six quarters, registering only single digit growth, but with the 10 per cent reduction in GST, the industry will grow 12-15 per cent over the next two quarters,” Agarwal says.
Vijay Babu, business head-refrigerators, LG Electronics India, also welcomes the recent announcement on the reduction of GST. He confirms that as a market leader, LG will pass on the entire GST reduction benefit to the customers with effect from July 27, 2018.
Mixed response from lithium-ion players
The energy storage sector, specifically the lithium battery segment, has seen a lot of demand recently. The initial investment on a lithium based battery is higher compared to other batteries and a 28 per cent GST made the situation even more difficult for customers. With the reduction in GST, this segment will also see higher growth.
Industry players in the Indian li-ion segment have had mixed reactions. Dr Kushant Uppal, founder and managing director, Intelizon, believes this is a very positive move as lithium-ion batteries are being adopted in various applications—for solar power, electric vehicles and in mobile phones.
S.S. Kandhari, managing partner, Montu Electronics, also welcomes this move to lower the landed price of li-ion battery cells, in the case of imports, as well as when reselling. He thinks that this will benefit OEMs, which can then provide li-ion batteries/li-ion cell-driven products at competitive prices to end customers. The other major benefit will be lower investments for all, including importers, retail sellers and users.
Samrath S. Kochar, COO, Trontek, shares this view. He believes that this is a very positive move, which will promote the use of lithium-ion batteries and slow down the country’s dependence on lead acid batteries. “The EV sector was already under pressure due to the inverted duty structure, with batteries being a major component. With this move, along with government subsidies, the use of lithium-ion will increase in the EV sector,” states Kochar.
Though the lower GST is welcomed by Biju Bruno, managing director, Greenvision Technologies Pvt Ltd, he feels that to do this only for lithium-ion batteries is an ill-considered move by the government. “There’s no manufacturing base for li-ion batteries in India. A few companies claiming to manufacture li-ion battery packs are importing the cells and only assembling the packs. The government should have also reduced the GST on lead acid batteries, which is a ₹ 600 billion industry that employs millions of people already,” Bruno says.
The only electric vehicle currently being sold in volumes across India is the e-rickshaw, which uses lead acid batteries. Bruno claims that by charging 28 per cent on these batteries, the government is ensuring that the business is in the clutches of the unorganised sector, which typically avoids paying taxes. He feels that the government should reduce the GST on lead acid batteries to 18 per cent for there to be any meaningful impact in the industry. “Reducing GST to 18 per cent will ensure that the major chunk of the business moves to the organised sector and results in improved tax collection as well as industry expansion and growth,” adds Bruno.
Dr Rashi Gupta, director, Vision Mechatronics, says that developers of off-grid and hybrid solar projects (either on rooftops or ground mounted) carried out under the RESCO (renewable energy service company) model will also get some tax relief. “This should make such projects more viable. We are hoping that the GST on these batteries further reduces to 5 per cent, as many of us have requested for it,” says Gupta.
Revised GST rates
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A boost to local manufacturing?
Experts from both the ACE and battery industries are certain that this move will propel domestic manufacturing initiatives forward. An optimistic Kabra points out that this move will definitely help in creating more employment opportunities. She states that further tax deduction in this segment will help increase production due to deeper penetration of products in all markets. “Products are largely imported into India and lower local levies may also provide an incentive to companies to manufacture them in India, instead of shipping them from other countries,” says Kabra. However, she believes that it will be a big fillip to domestic manufacturers if all consumer durables can be taxed uniformly at 18 per cent.
Agarwal is also confident that with this reduction in GST rates there is going to be a surge in sales, which will definitely help manufacturers. Though he supports this change, he still feels that GST alone is not a factor that will boost domestic manufacturing; there are many other strings attached like customs duty, freight overheads, dollar index, etc, which have to be worked upon for an overall healthy ecosystem.
Uppal strongly believes that this will spur the local manufacture of lithium-ion batteries as well as the products that fall under the revised GST rates. Supporting the move, he says that product reliability and serviceability with local batteries can be managed much better than with imported batteries. “Lowering the cost of batteries, which make up 25 to 30 per cent of the overall product’s price, will reduce consumer prices and spur demand,” adds Uppal.
This move to reduce GST may encourage more companies to enter the field of cell assembly of lithium-ion batteries, but are these batteries the right answer to India’s energy storage requirements, Bruno asks. He points out that batteries don’t work by themselves; they are part of a system that involves sophisticated power electronics with specific usage and charging requirements. The Indian market is yet to reach a stage where it can handle the lead acid battery properly. These are very rugged products, and yet there are umpteen instances of misuse. Li-ion batteries are far tougher to manage, charge and maintain. So he doubts whether the same market that cannot maintain lead acid batteries will be able to handle li-ion batteries properly.
However, the reduction in GST on li-ion batteries should have an impact on EV pricing, which till now has been priced much higher than equivalent petrol/diesel vehicles. Gupta says, “This will broaden the domestic consumer base for EVs, and eventually encourage domestic manufacturing. ‘Batteries as a Service’ may become a more attractive model as the lower investments reduce the payback period significantly.” She strongly thinks that the B2B segment will also benefit with the tax reduction, leading towards the mainstream adoption of lithium batteries.
Kandhari agrees with this. Till now, the domestic manufacturing scenario was basically the assembly of battery packs after importing the li-ion cells. With GST reduction, the cells as well as the assembled li-ion battery pack will require overall lower investments. “After one or two years, when cells based on NASA technology get developed here in India, there will be bigger benefits if the GST on li-ion stays the same,” says Kandhari. The only grievance he has is that while the less environment-friendly NiCd and lead acid batteries are still rightfully taxed higher, the more eco-friendly Ni-MH batteries/cells are also taxed at high rates of 28 per cent, which should have been changed.
The Central government had budgeted a gross tax revenue growth of 16.7 per cent for the current financial year, which ends in March 2019. GST collections are an important part of government revenue because of a wide tax base. As per estimates by various industry analysts, the recent GST rate cut will lead to a revenue loss of about ` 80-100 billion, but the government is hopeful that a rise in demand due to the lower rates will eventually lead to better tax compliance and higher revenues.
