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Watch out: price peril lurks in many corners

July 10: Car companies have been among the first to winch up prices after the government slapped a 2 per cent education cess on a broad swathe of federal taxpayers in the budget.

Over the weekend, corporate honchos have been poring over the budget papers to assess the implications of tax changes to figure out if they can pass on the burden to consumers.

The bad news is that consumers will have to soon start paying more for products and services ranging from some toothpastes and shampoos, clocks and watches to bank drafts, airline tickets, telephone services and credit card payments.

But the biggest worry is over the imminent increase in steel prices which will have a big inflationary impact on the economy as it comes on top of the fuel price increases last month.

Inflation is already running at 6 per cent.

“All buyers like the construction sector who cannot pass on excise hikes will face higher prices,” said V.S. Jain, the chairman of steel giant SAIL.

Air fares are expected to go up with the imposition of a 48 per cent tax on aircraft leasing charges which could inflate the airlines’ tax burden by nearly Rs 250 crore.

About 60 of the 130 aircraft flown by domestic airlines have been taken on lease. The airlines plan to rent another 30-40 aircraft over the next two years.

Airline executives are hoping civil aviation minister Praful Patel will lobby the finance minister to roll back the measure. If Patel does not succeed, air fares may go up but marginally as there is too much competition.

The telecom industry is unlikely to absorb the burden of the 2 per cent increase in service tax. Result: higher phone bills.

The cost of making bank drafts will also go up with account-holders in public sector banks having to pay more by way of commission. However, most private sector banks do not charge any commission for bank drafts in the case of those customers who have Rs 5 lakh in their current accounts.

Bankers reckon the service tax will become effective as early as August 1. But the budget papers say the tax will take hold when the finance bill is passed — and that could go into September.

Credit card holders will have to pay more because of the increase in the service tax to 10.2 per cent. A credit card holder with a finance charge of say Rs 766, would now have to pay a service tax of Rs 77 as against the earlier amount of Rs 61.27.

Toothpaste and detergent prices could go up too, though marginally. Fast-moving consumer goods companies have had a rough time this year as the heat of competition and a rash of price discounts have crimped their profit margins. They are hoping that a good monsoon and strong farm sector growth this year will boost sales and help them absorb the tax burden brought on by the education cess

But it ain’t all bad news: prices of branded computers are expected to come down and some reckon cotton fabric prices could drop 12 per cent.

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