‘Happy Birthday GST’. What’s in it for the Common Man? Will you be paying more?
In a historical move, the Rajya Sabha on Wednesday passed the bill for India’s biggest tax reform in 70 years. Yes, the bill amends the Indian Constitution to enable GST or the Goods and Services Tax. It is indeed one of the most revolutionary economic reforms from the Narendra Modi led government and yes, it is going to affect us all.
For a common man, GST too happens to be one of the intricate tax reforms like most of the existing taxation structures. This article aims to present an unbiased overview on the newly rolled-out GST and explain as why it would make a difference to the common man.
But before delving into the impacts of GST on the common man, let us first understand what GST actually is and how it works?
GST or the Goods and Services Tax is a comprehensive VAT or value added tax on the supply of services and goods. It would be replacing all kinds of indirect taxes such as CST, VAT, Excise Duty, etc. that are levied on services and goods. The motive of this revolutionary tax reform is to reduce the surging effect of taxes on services and goods and create a unified, cooperative and common Indian market to strengthen the country’s economy.
Simply put, GST would merge state VAT entertainment tax, service tax, additional excise duty, central excise duty, etc., all under one single banner. GST will be affecting the tax structure, credit reporting, credit utilization, tax calculations and tax incidences eventually reviving the current indirect tax reform. (Source: GST INDIA)
How consumers would benefit from GST?
Most of the consumers are clueless when it comes to taxes they pay on several goods. If a bill states about the VAT you paid, it is actually an understatement of the actual tax that you are being charged. This is because the government collects the excise duty well before the merchandise reaches the retail outlet. And, the bill doesn’t mentions about this excise duty.
With GST in place, consumers would benefit in two major ways:
- Firstly, all the taxes would be collected at the consumption. For instance, if a trouser is taxed at 15%, then it would be inclusive of both state and central governments taxes. This kind of transparency in the extent of taxes shall prevent governments from randomly increasing the taxes.
- Secondly, after the barriers between states are eliminated, consumers would no longer need to shell out “tax over tax”, which is a common occurrence when goods move from one state to the other. (Source: TOI)
Will GST improve employment?
Talking about employment, GST implementation aims to boost the demand and supply of goods, which would eventually aid in the growth of economy. And economic growth on the other hand would boost employment rates.
Rajeev Chandrasekhar, independent Rajya Sabha MP stated, ““Indirect taxes are the backbone of our financial model. Thus, simplifying the indirect taxes becomes very important in that aspect.”
Mr. Chandrasekhar supporting the reform added that GST is undoubtedly a significant tax reform. It shall create more employment, create a wide range of choice for products, reduce corruption and bureaucratic procedure.
He further added, GST is a business and consumer friendly reform and is set to benefit both the producers as well as consumers. Reduced costs and taxes pave way for a broader tax base, which will eventually increase the flow of revenue to the government assuring more funds for social welfare. (Source: The Financial Express)
What GST has in store for the common man?
GST as discussed above which happens to be the nation’s most revolutionary tax reform as of now is likely to affect the lives of common man in a number of ways. The historic legislation whilst assuring for a unified tax system for the country also aims to boost the GDP.
So the question is how GST will impact the budget of a common man? Here’s a quick guide on how GST will be affecting your budget:
- Dining out to get expensive
As of now if you spend around 1000 for eating out, you pay approx. 18.5% service tax as well as VAT. With the implementation of GST, expected tax rates can be anywhere around 18% or more.
Services would be getting more expensive with GST, as the states can opt for higher rates. Altogether, dining out, clubbing, drinking and smoking are set to become even more expensive. So brace yourself to feel the brunt of higher prices for these services under the GST reform.
- Mobile bills to go up
Since the states can decide the rates for service tax, your mobile phone bill could escalate. For instance, for a bill of 1000 on which you shell out 15% as service tax, you end up you paying a total of 1150. But with GST, if the tax rate let’s assume is fixed at 18%, then you might have to shell out around 1180.
Under the GST tax reform, tax rates are bound to escalate and thus, telecom operators will be left with no option than charging their customers. So expect higher call rates and internet pack rates in the near future.
- Readymade clothes & LED TVs to get inexpensive
Purchasing fashion brands and readymade garments will get inexpensive, because the current VAT i.e., 5% and excise duty i.e., 7.5% would be incorporated in the GST slab.
So if you buy a T-shirt priced at 1000/- and you shell out 1125/- including the taxes. But with a GST of 12%, you will end up paying a total of 1120/-
- Your dream car may get cheaper
With similar prices between non-manufacturing as well as manufacturing states, buying a car would get easier as well as cheaper, according to tax experts.
For instance, a car priced at 5 lakhs attracts 12.5% excise duty and adding VAT to it brings the cost around 6.25 lakhs. Under GST, if the new tax rate is fixed at say 18%, the price may go down by 35,000 and you may end up paying 5.9 lakhs for your car.
- Mobile phones and jewelleries to get costlier
Get ready to shell out more for jewelleries and mobile phones in the future. Compared to the current 2% tax rate on jewellery levied on the consumers, GST roll-out would have approx. 6% tax rates impacting your jewellery purchase.
- Online & E-commerce purchase
Purchasing electronics, shoes and bags from online or e-commerce stores are set to get costly, as the GST would be bringing the e-commerce under the tax slab. (Source: India Today)
As of now, the bill for GST only alters the all-inclusive indirect tax principle in the country in an attempt to create and nurture a common market. And, details of the Good and Services Tax are yet to be exercised. Only after figuring out the details, the government would release final GST tax rates to the masses.
Post the amendment of constitution, both the states and centre would then have to pass a separate regulation, which would give out the details of GST. This would eventually boil down to a subordinate regulation that will detail the procedures.
To conclude, constitution amendment is simply the beginning of this revolutionary legislative journey.
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Originally published at blog.pockethcm.com on August 4, 2016.