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Business

GST becomes India's hottest marketing tool

Automakers, airlines and others race to share benefits of new tax system

MUMBAI -- India's goods and services tax is just a few days old, but consumers are already feeling a positive impact on their pocketbooks.

From automakers and sundry suppliers to airlines, companies are scurrying to share the direct and indirect benefits of the reduced and simplified tax rates. The prospect of a flurry of consumption sent the Bombay Stock Exchange's benchmark Sensex index rising nearly 1%, to 31,221.62, on Monday -- the first trading session after the GST was launched.

Carmakers have been the fastest to announce discounts. The largest player in the domestic market, Maruti Suzuki India, was one of the first to cut prices, trimming up to 3% off ex-showroom prices -- what the dealer charges for procuring the vehicle and covering state taxes. "The rate of reduction varies across locations, depending on the [value added tax] rates applicable prior to GST," the company said in a statement.

Toyota Kirloskar Motor followed suit by reducing prices by as much as 13%, effective immediately.

"We are happy to pass on the benefits of GST rates on vehicles to our customers," said Raja, director and senior vice president of marketing and sales at Toyota Kirloskar Motor.

Luxury brands such as Mercedes-Benz, BMW, Audi and Tata Motors-owned Jaguar Land Rover have slashed prices by 5-10%, according to the Economic Times. That translates into savings of anywhere from 70,000 to 1 million rupees ($1,079 to $15,418) on high-end models.

Motorcycle manufacturers are in on the action, too. Hero Motocorp on Saturday said its "mass selling" models are now up to 1,800 rupees cheaper.

Overall, the new tax regime is considered a largely neutral factor for the corporate sector, barring certain fields such as oil and gas. But companies see a chance to catch consumers' attention -- if they act quickly. When it comes to vehicles, experts reckon the new prices will help unleash pent-up demand, as consumers had been waiting to see how post-GST prices shape up before buying cars and bikes.

Most automakers saw declines in their sales volumes in June, prior to the introduction of the GST, though Maruti Suzuki posted a marginal 1.2% sales increase.

Consumer goods companies are making moves of their own. Hindustan Unilever, for instance, has reportedly increased the weight of some products while holding their prices steady; for other products, it has reduced prices. Nestle India, too, has promised to offer better deals under the new tax regime.

Apple has reportedly brought down prices of its iPhones by up to 7.5%. The iPhone SE, which is assembled in Bangalore, is at least 4% cheaper, while the price of the high-end iPhone 7 Plus has been lowered by 6,600 rupees, to 85,400 rupees.

Changes in the air

Airlines such as Air India and Jet Airways Airlines such as Air India and Jet Airways have made it mandatory for companies booking [tickets for business travels] to register their GST details, to avail themselves of input tax credits. Starting July 1, a GST rate of 12% applies to business and premium economy tickets, while economy seats are subject to a 5% rate; the GST replaces a service tax and other levies on tickets. 

Jet Airways, India's No. 2 player by market share, announced on its website that companies that register the details can claim up to 12% back on flights booked for employees. "GST invoices will be shared with your guest's company monthly, which can then be used to claim GST benefits," the airline said, noting that bookings for leisure travel are not eligible for the credits.

Air India said companies will only have to register once. Vistara, an airline run by Tata Group and Singapore Airlines, has made the registration optional.

According to ICRA, a ratings agency, the GST on economy class air travel is 100 basis points lower than the earlier service tax rate. For business class, on the other hand, the rate is 3 percentage points higher. In ICRA's view, these rate changes are unlikely to have a major impact on passenger growth -- though the lower rate on economy class is in line with the Ministry of Civil Aviation's goal of making flying affordable for the masses.

The fine print is, well, a bit complicated. Under the GST, the agency noted, "airlines can claim input tax credit on all inputs (all goods purchases including spare parts, food items, etc.) only for the business class, and only input services for the economy class." 

For airlines that rely heavily on revenues from economy class, this could result in additional costs, the agency said. "In the current scenario of pressure on yields due to increasing capacities and competitive intensity, [the] ability of the airlines to pass on the increased cost to the customers is also restricted." This is why the airlines resorted to using tax credits as a carrot for business customers, rather than direct airfare cuts.

For the most part, though, the business community is embracing the new system, despite the inevitable headaches that accompany such a transition. And in many cases, consumers are reaping direct rewards.

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