Nagaveena M
GST or Goods and Services Tax as the name implies, it is an indirect tax applied both on goods and services at a uniform rate. This means goods and services will be subjected to a uniform tax rate and both will be treated at par, a single form of tax known as GST or Goods and services tax will be applied throughout the country, replacing a number of other indirect taxes like VAT, Service tax, CST, CAD etc. To make it simple, let us understand the process from before the beginning stage: there are two types of taxes in India; direct and indirect tax.
Direct tax is income tax, and gets deducted from the income. Indirect taxes are the taxes like VAT, excise duty, customs duty, entertainment tax etc. These indirect taxes are quite in number and differ vastly state wise. In such scenario it is very complex for the government and tax payers to manage these taxes. That is why the government wants to implement one Indirect tax across the country: One Nation, One Tax, and One Market. Essentially with this system the consumer will not be paying a tax on an already taxed item.
Now a bundle of indirect taxes will get replaced by a new tax in India known as GST or Goods and Services Tax, thus leading to a much simplified tax regime, as compared to the earlier complicated tax structure comprising of numerous taxes.
What is the aim of GST?
If we try to understand the business happenings in India and what is the benchmark for pricing goods and services, we can better appreciate the benefits which GST is suppose to bring for us. To make it simple: the price paid by a consumer for goods and services have some components which go unnoticed often. They are: the cost of inputs which largely depend on business decisions. Indirect taxes have limited role here, as inputs will also have an indirect tax levied on them, secondly the profit margin is also a major element which determines the price and is solely a business decision.
The third factor which affects the pockets of the consumer is the taxes, which is again dependant on the scheme of taxes on products, services or industry. The present tax system has resulted in cascading effect of taxes, but the GST implementation is expected to curb this cascading effect and provide a seamless credit to the supplier and in turn, these will only be a tax on value addition (in terms of tax) paid on procurement of inputs. May be in future days the amalgamation of existing indirect taxes and cesses will have a critical role in determining the price of a product.
Who will have to pay GST?
GST will be paid by all manufacturers and sellers. It will also be paid by service providers such as telecom providers, consultants, chartered accountants etc. However, being an indirect tax, GST will be ultimately borne by the end consumers, just like in the current process.
GST Slab rates:
• Zero rated items : Food grains used by common people.
• 5% Rate : Items of mass consumption including essential commodities will have low tax incidence.
• 12% and 18 % Rate : Two standard rates have been finalized as 12% and 18%.
• 28% Rate : White goods like Air conditioners, washing machines, refrigerators, soaps and shampoos etc, that were taxed at 30-31% shall be now taxed at 28%.
Goods like tobacco, tobacco products, pan masala and aerated drinks shall be charged at the highest rate of 28%. An additional cess on some luxury goods shall also be imposed
What will be expensive?
• Dining out will be expensive
• Phone Bills: After implementation of GST, internet packs and call rates are likely to get higher.
• Jewellery : The yellow metal too is all set to become expensive. But the new rate 3% is close to current rate 2%, hence will not affect consumer buying dramatically
• Online shopping, banking and insurance will be expensive. Services offered by banks are taxed at 14.5% currently which under GST regime are likely to become costlier at standard rate of 17-18%.
• Travelling as Air tickets to will become expensive post the implementation of the GST.
• Telecom industry already weighed down by high taxes and Levis, have to face an additional shift of 3%.
• Fashion business may also get affected as clothes are likely to become expensive. Apparels priced below 100 INR are expected to fill up 5% GST but more than 1000 INR will attract 12% tax.
What will be cheaper?
• The luxury of a car will now seem reachable for the common man. Buying a car will be hassle free in different states with same prices everywhere. Small cars are charged a similar rate of 28 percent as compared to the mentioned GST rates and prices of such cars are expected to reduce due to the input tax credit on services available to car manufacturers under GST. Mid segment cars are expected to be neutral as there are similar rates under both laws. SUVs and luxury cars are expected to get expensive due to costs associated with accessories despite the net tax charged under GST (43 percent) is less compared to the current net tax of 45-46 percent..
• Televisions, Movie Tickets as Entertainment Taxes are likely to reduce by 2-4%.
• Processed Foods: Companies manufacturing processed food pay various taxes summing up to 24%-25%. With GST, it’ll sum up to 17%-19%. Such great savings from the taxes may issue a decrease in prices of products, making it cheaper for end consumers.
• Cement: Tax for cement is 25%. With GST it will become 18%-20%.
• Traders below Rs. 20 lakh annual turnover are exempted under GST as compared to the current threshold of Rs. 10 lakh in indirect taxes. Exports are zero-rated under GST. Exporter would be entitled to refund of integrated GST paid on exports. More efficient neutralization of taxes may make our exports more competitive internationally. This would help the small scale suppliers to make their products cheaper.
Due to implementation of GST, interstate check posts will get eliminated. This gives the freedom of movement of goods and services. Though this implementation aims at creating a unified National market which in turn would make India a manufacturing hub, it is important to understand the unforeseen consequences as change is never easy. Other countries which have implemented GST before India have faced inflation and price hike during the transition period. However, there are anti-profiteering measures in the GST bills which will keep price hikes in check and stop the economy from blowing over.
