The much talked about Goods and Services Tax or GST can be implemented anytime from April 1, 2017, to September 16, 2017, as it is a transactional tax and not income tax, it can be implemented at any stage of the financial year. Ever since the decision to implement GST was passed in August this year, there has been a lot of uncertainty regarding GST and how it would affect the common man as and when it will be implemented. Before talking about the impact of GST, let us understand the basics of the proposed GST structure.
The Good and Services Tax is by far the biggest tax reform in the country which will replace a plethora of indirect taxes which exist currently such as Central Excise Duty, VAT, Octroi, Entry Tax, Luxury Tax and other such taxes to be replaced by GST. Given the diversity and income disparity in India, the government has rolled out a 4 tier rate structure of 5%, 12%, 18% and 28% so as to keep inflation in check and subsidize essential commodities and a higher tax rate for luxury items and sin goods.
There have been constant debates and discussions about the implications of GST on the pocket of a common man. Here are the few major implications of GST on the common man:
- A single indirect tax would replace multiple indirect taxes: This is clearly an advantage that GST will offer as it reduces the number of taxes to one single tax. Manufacturing companies pay excise duty on the goods they produce and this increases the cost of goods which is passed on to the final consumer. Service providers pay service tax on services rendered within India which is passed to the customers. Apart from this, there are a many other taxes which get added to the final cost. Restaurants charge on the food we eat out, Octroi is charged when goods move from one state to another. There is entertainment tax charged on the movies we watch and much such which ultimately form a part of the cost of goods and services. With the introduction of GST, all these taxes will be done away with.
- No tax on 50% items included in the CPI Basket: In order to keep inflation in check and to protect the interest of poor, 50% of the items in the Consumer Price Index (CPI) basket such as food grains will not be taxed at all. The other items of essential items such as oil, tea, utensils, spices etc would attract the lowest tax rate of 5%.
- Goods in FMCG sector to become cheaper: At present goods purchased attract an excise duty of 5% and an additional VAT of 14% which makes the effective tax on such goods of about 28% and all this are borne by the consumer as they are a part of the final price. Under GST Bill the final rate of tax would be 18% which is much lower than the current 28% thus lowering the cost of a host of goods.
- Luxury items and sin goods to become expensive:
Items which do not form a part of daily consumption and which are not consumed by masses are to be charged at the highest tax rate of 28%. Thus, for those who indulge in luxury products such as luxury cars, clothing, bags, shoes, perfumes etc will have to pay higher taxes and this would increase the price of such goods. Sin goods which are basically items are like cigarettes, pan masala and alcohol are already in the highest tax bracket but after GST these would attract an additional cess and would make them more expensive. - Services will become more expensive: For any services rendered to you by your service provider, there is a service tax of 15% which includes 14% service tax and 0.5% cess for swachhbharatudyaan and 0.5 % of krishikalyan. Under the GST regime, services are likely to be charged at a higher rate of 18% which is slightly higher than the current service tax. Thus GST will result in the increase in the cost of the host of services like dining out, airline tickets, mobile phones, broadband bills, electricity bills, equity trading, buying insurance, foreign trips, and other professional services. This is one area which would have a huge impact on the finances of a common man as there are many such services availed regularly.
- E-commerce portals to come under GST: Online purchases have become very common as these websites offer huge discounts and offer all year round. Currently, they are outside the tax bracket but now these portals also will come under the net of GST regime, thus buying from such portals may no longer be advantageous.
In short, GST will be a mixed bag for the common man where essential goods will become a little cheaper and availing services would be a tad more expensive and the tryst with luxury and sin goods is sure to get very expensive.
