After so much of conferences and considerations, the GST council of India has finalized the prices of all the major services and goods categories under an array of tax slabs, and the GST is anticipated to fill the loopholes in the present system and upgrade the economy of the country. This is being carried upon by unifying the indirect taxes for all the states in India. The tax rates under GST are set at 0 percent, 5%, 12%, 18% & 28% for different services and goods and almost 50% of the services and goods come under the 18% tax rate. However, how has our life changed post GST? Let us see how GST on the day-to-day goods and services has affected the pocket of the end users.
Short-term Impact of GST
From the point of view of the consumer, they are now paying more tax for most of the services and the goods they buy or consume. The maximum no. of consumables of everyday life now draws the same or a little higher tax rate. Also, the implementation of GST has a compliance cost linked to it. It appears that this compliance cost is high and prohibitive for the small-scale traders and manufacturers, who have also protested against it. They may result in pricing their goods at higher rates.
GST Impact on Distributors, Manufacturers & Retailers
GST is undoubtedly a boost performance and competitiveness in the manufacturing sector of the country. High spending on infrastructure and declining exports are only some of the concerns of the sector. A number of indirect taxes had also raised the administrative costs for the distributors and the manufacturers; and with GST in place, there is an ease in the compliance burden and this sector will grow even stronger. However, because of the GST business that was not under the bracket of tax earlier will not have to make the registrations. This will result in lesser tax evasion.
The telecom sector is facing a lot of pressure in the form of strong competition from Reliance Jio. Under the regime of GST, these services are taxed at 18% as against 15% before. There are expectations that it’ll work as a salt on wounds of the telecom sector.
Tax Rates Under GST
GST is imposed at many different rates on the different items. The banking and financial sector has found itself in the slab of 18% service tax under the GST structure, as compared to its earlier 15% service tax. Though the purpose of each type of loan i.e. short term loans, personal loan, home loan etc. differs; what runs common is the levying of service tax that has been fixed at a standard 18% rate with the advent of GST, an increase of 3%, compared to its 15% under the earlier tax structure.
The rate of GST is 2.5 percent for soaps & 28 % on the washing detergents. On movie tickets, the GST is based on slabs, with 18 percent GST for the tickets which cost less than 100 rupees and 28% GST on the tickets which cost more than Rs. 100 and 5% on the readymade clothes.
The rate on the under construction property booking is 12 percent. Some products and industries were exempted by the govt. and remains untaxed under GST, like milling industry products, dairy products, fresh fruits and vegetables, meat products and other necessities and groceries.
Benefits of GST for Indian Economy
- The removal of bundles indirect taxes like VAT, Service tax, SAD, CAD and Excise.
- Lesser tax compliance and simplified tax policy in comparison with the present tax structure.
- Removal of the disgorging effects of taxes i.e. removes the tax on tax.
- Reduction of manufacturing costs because of the lower burden of taxes on the manufacturing sector. Therefore, prices for consumer goods are likely to come down too.
- Lesser the burden on common people, i.e. people will have to give lesser money for buying same things which were costly before.
- Increase in demand and the consumption of goods.
- Increase in demand leading to increase in supply. Therefore, this will ultimately result in a rise in the goods produced.
- Control of the circulation of black money as the system generally followed by shopkeepers and traders will be put on the compulsory check.
- Boost to Indian economy in the longer run.
These are the possible benefits only when the actual benefit of GST is passed on to the final consumer. There are other factors as well, like the profit margin of the seller, which determines last price of goods. GST only cannot determine final rate of the goods.
GST Impact on People Living Below Poverty Line
With respect to the ones living under the poverty line, there is not any direct impact of GST since the basic necessities like food are very unlikely to attract the GST. Nonetheless, the increased collections of the GST with larger tax base should give a momentum to the government for allocating more money for the poverty alleviation and social programs. Hence, the GST should benefit all the sections of the society. Along with this, being the nation-wide tax, it can also lead to possibly higher inflation in the first few years. However, it will gradually increase the overall GDP.