GST: Luxury goods prices unlikely to change under new tax regime
New Delhi: Buyers of luxury items, such as apparel and leather goods, are unlikely to benefit under the new goods and services tax (GST) regime. Effective tax rates for most of the items under GST are more or less at the same level at which they were before the GST regime came into place on 1 July.
“For most of the items, except watches and cars, rates are almost at the same level as pre-GST. There would not be much impact. However, companies will gain from the supply chain efficiency in the GST regime. This may result in marginal price correction at a later stage,” said Pratik Jain, partner and leader (indirect tax), PricewaterhouseCoopers Pvt. Ltd, a consulting firm.
Luxury watches will cost more while buyers of luxury cars will benefit the most in the GST regime. Other luxury items are likely to be cheaper by around 2-3% over a period of time.
Local units of luxury car makers such as Jaguar Land Rover Automotive Plc. have already started passing on the benefits to consumers by reducing prices in the range of Rs2.61 lakh to Rs5.07 lakh of locally assembled models. Audi AG, Bayerische Motoren Werke AG and Mercedes-Benz AG have followed suit.
Krishan Arora, partner at consulting firm Grant Thornton India, said companies will have to pass on the benefits, even if marginal, to consumers as they are barred from profit-booking.
“In the longer term, prices should fall for almost all luxury items, except the ones that would attract more tax (luxury watches) under GST,” added Arora.
Retailers are hopeful. “GST reform has made consumer facing businesses to restructure their financial model which will result in rejigging their logistics and supply chain which will entail additional costs. But in the long run, this may be a price worth paying,” said Salesh Grover, business head, OSL Luxury Collections Pvt. Ltd, which sells Versace’s commercial line Versace Collection.
Genesis Colors, the luxury firm which sells Jimmy Choo, Canali and Burberry branded products in India, declined to comment.
“It’s too early to gauge the impact,” said Dinaz Madhukar, senior vice president at DLF Luxury Retail, which operates luxury shopping mall DLF Emporio.
Watch brands like Chopard, Rado and Carl F Bucherer started offering discounts a week before 1 July. Ethos, which sells Rolex and Dior watches in India, had run a sale on more than 1,500 watches before the GST implementation. The company did not respond to queries.
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