As widely expected, the GST Council on Saturday slashed rates on a host of commonly used products, handing relief to the common man.
Apart from reducing rates for 22 items, the Council rationalised the 28 per cent slab — which is seen as an eye sore by many — by removing six items from the highest tax bracket. This leaves only 28 items in the topmost slab.
The annual revenue implication of the rate cuts would be to the tune of Rs 5,500 crore, Finance Minister Arun Jaitley said.
Market analysts are divided over the impact of GST Council's latest decision.
"It's a very positive policy move as the government has understood the reality why GST collection has so far been low. The highest slab, which has seen some items moving out, may at one point become history," Sanjiv Bhasin, Executive VP-Markets & Corporate Affairs, IIFL Securities, told ETmarkets.com.
"The market was expecting some change on cement and tyres though. But that may have been postponed till the Budget. But overall, the move will be well received by the market as it gives an impetus to consumption and spending once the rates kick in," he hoped.
Not just that, the reduction in rates, according to Bhasin, makes tax rates reasonable that will lead to better compliance. In the long run, this will translate into higher revenue as more people file returns.
He acknowledged that there were teething troubles during GST implementation, but held that there are signs of stability now and the tax structure will turn out to be a big positive for the market.
However, A K Prabhakar, Head of Research, IDBI Capital, is not fully convinced. Today's tax reduction, he said, has come mostly on minor items, which would not have any major repercussion from the market point of view.
"If rates were reduced on cement, then it would have benefited in a big way. But that stands postponed," reasoned Prabhakar.
About tax compliance, Prabhakar insisted that it's not lower rates but better inspection and implementation that holds the key.
Another market analyst, G Chokkalingam, Founder and Managing Director of Equinomics Research & Advisory, has a balanced view.
"It's positive for the economy in general as it will promote tax efficiency and encourage more tax compliance. However, major sectors in the market may not show any major upswing as many crucial sectors like cement have not got significant benefit," he said.
The 28 per cent slab is now confined to only luxury and sin goods, other than auto parts and cement. Their tax rates could not be cut due to high revenue implications.
The new tax rates will take effect from January 1, 2019.