GST Rate Cuts on Daily-Use Items Set to Boost Consumption and SME Growth

The Goods and Services Tax (GST) Council is considering a significant revamp of tax rates, with proposed cuts on various daily-use items expected to stimulate consumption and benefit small and medium enterprises (SMEs). The upcoming changes, set to be discussed at the GST Council meetings scheduled for September 3-4 in New Delhi, could have far-reaching implications for both consumers and businesses.

Proposed Rate Cuts on Essential Items

The GST revamp proposes moving several daily-use items from higher tax slabs to the 5% bracket. Products that may see reduced rates include:

• Ghee
• Butter
• Toothpaste
• Shampoo
• Paneer
• Milk powder

These items are currently taxed at 12% or 18%, and the proposed shift to 5% is expected to make them more affordable for consumers.

Impact on Consumer Durables and Consumption

B Thiagarajan, Managing Director of Blue Star, expressed optimism about the potential impact of these rate cuts. He anticipates that the period from fiscal 2026 to fiscal 2031 could be a 'golden period' for consumer durables. The timing of these cuts, ahead of the festive season, is expected to encourage customer purchases and drive consumption growth.

Benefits for the Food Industry

Srideep Nair Kesavan, CEO of Heritage Foods, highlighted the positive implications for the food sector. He noted that the move would boost consumption and potentially reduce dependency on edible oils. Kesavan pointed out that ghee, which contributes approximately Rs 35,000 crore in revenue, stands to benefit significantly from the rate cut.

SME Sector Expectations

The proposed GST rate cuts are expected to have a substantial impact on the SME sector:

• Chandrakant Salunkhe, President of the SME Chamber of India, emphasized the significant benefits these cuts would bring to SMEs.
• Sanjay Nayar, President of ASSOCHAM, welcomed the rationalization of GST rates but stressed the need for further groundwork in the MSME sector.

Broader Scope of Rate Cuts

The proposed rate cuts extend beyond daily-use items to include:

• Pharmaceutical products
• Medical equipment
• Cement
• Cars

Luxury Items Face Higher Rates

While essential items may see reduced rates, luxury goods are proposed to face a higher GST rate of 40%. This would apply to:

• Luxury cars
• SUVs
• Motorbikes above 350cc
• Carbonated beverages
• Tobacco products

The GST Council's final decisions on these proposed changes will be made during the upcoming meetings in New Delhi. These rate adjustments, if implemented, could reshape consumer spending patterns and provide a boost to various sectors of the Indian economy.