How GST will affect common Man’s Wallet!
Last year in the month of August, GST Constitutional Bill was passed in the Rajya Sabha and ever since then the country is preparing itself for the new tax regime. The GST will be one of India’s biggest tax reform initiative and it is expected that it will improve compliance levels, increase government revenue and will create a common ground for all the businesses by merging central and local taxes.
Now, GST seems to be a little confusing and is like a mixed bag with some necessary goods becoming cheaper, while others can become more expensive. GST is presumed to be great in the long run and it will effect favorably on the most sectors of the economy but in the short run, it may hinder some pace in the growth. As the history of GST implementation in other countries suggests, initially India will face some inflationary impact on the onset of the reform, which will fade once the legislation sinks in.
Things that might get Costlier for Common Man:
The current rate of service tax is 15% and most of the services are covered by this tax rate excluding cultural activities, ambulance services and certain pilgrimage and sports events. Under GST, this rate may go up to 18% and as result, it will make services more costly. For some goods like edible oil textile, etc. the excise duty is nil and for the same goods, VAT is 5%. Hence, the total cost of goods is around 8%-9%. GST will increase the cost of such goods and as a result, there will be a hole in the wallet of the common man.
The Government has a more strict approach towards sin goods which includes cigarettes, tobacco, and aerated drinks. Most probably these goods are going to be taxed at higher rate than normal, as result it is good news for those who want to cut down their consumption of these products.
Some of the things which can get costlier once GST comes into play include:
- Restaurant and hotel bills
- Mobile bills and internet packs
- Transportation services including railways, air travel, and cab services
- Jewelry and precious metals
- Luxury cars
- Cigarettes and other tobacco-related products
- Aerated drinks
- Courier and DTH services
Things that might get Cheaper for Common Man:
The cost of the indirect tax on goods is presently at the higher levels. This is because most of the goods such as consumer electronics, beauty products, non-luxury automobiles, etc. draw an excise duty of 12.5 percent and state VAT around 12.5%-15%. Moreover, there are several cascading taxes due to CST, input tax credit retention under the VAT regulations, levy of octroi, entry tax and other taxes imposed by the local body, during the entire value chain till the product reaches the customer.
For the manufactured consumer goods, the present tax regime implies that the consumer has to pay nearly 25%-26% in excess of the production cost of the goods due to excise duty and VAT. So, with the rollout of the Goods and Service Tax where the rate is expected to be 18 percent for most of the goods, these are likely to get cheaper.
Some of the products which can get cheaper once GST comes into play include:
- Wood articles and Plyboards
- Online Shopping
- Fast moving consumer goods (FMCG) goods like processed foods, shampoos, chocolates, etc.
- Pharma products
- Branded apparel
- Movie tickets
- Paint, cement and several construction materials
- Air coolers, fans, water heaters, TVs, and other electronic items
- Solar panels, and fingerprint scanners
GST, addressed as one of the most influential tax reforms which India has ever seen, aims to subsume the multiple tax regulations on most of the goods and services. GST will completely change the tax regime of production -based taxation to a consumption-based system. Corporates will be benefitted once the GST roles out, however, the advantages to the common man are still speculative. We can just hope that the consumer will also enjoy the benefits provided by new tax regime, once the business houses transition into completely new tax structure and will pass on the benefits to Indian common man.
- Posted on Jun 29, 2017
- By Dhruv Rudani
- 0 Comments