As we all know that the Government of India is going to start GST from 1 July onwards. There are many questions related to GST among the common people. One of which is “What will be the effect of GST on the pocket of the common people??” In this article, we will answer this question and get to know the effect of GST on pocket on common people.
Everyone is preparing themselves for GST from the passing of GST bill in August last year. It is said that the GST is the biggest tax reform in India which aims at more compliance, increase the revenue of government of Indirect tax, simplifying the tax system by creating a single blanket tax system by merging central and local level taxes and create a common ground for all manufacturers, wholesalers, service providers and traders.
GST aims at creating necessities cheaper and all the luxurious things to be expensive. It could have a mixed impact on the pocket of the common people. Goods and Service Tax (GST) will have similar effect like of other reforms i.e. limited benefits in view of short period of time but a lot of positive benefits in the long period of time to the all sectors of the economy. In the outbreak of GST, it is expected to have an inflationary effect on the economy but it could disappear with the lapse of time.
Goods and Services that will get expensive:
As discussed above government through GST will try to make luxurious things expensive. The luxurious things will affect adversely the pocket of common people. These all goods and services will now lead to increase the hole in the pocket of common people.
- Through GST government also wants to put a negative vision on the sin goods such as Cigarette, aerated drinks etc. Presently these goods are taxed @ 23%- 24% but after the implementation of GST the rate of GST levied on these goods would be 28% which is higher, this will lead to lower the consumption of these goods which is beneficial for the health of the individual.
- Presently the service tax is levied @ 15% on all the services but also some of the essential services such as pilgrimage, sports, ambulance services are excluded from the clutch of the service tax, but after the implementation of GST the rate of GST levied will be 18% which will make these all the services more expensive.
- Presently there is NIL rate excise duty levied on some goods such as edible oil, textiles etc and Vat is levied @ 5% in some of the states. Thus, it leads to the cost of all these goods to 8%- 9% but after the implementation of GST the cost of these goods will increase.
- Other goods which are now days commonly used which will get expensive are luxury cars, motor bikes and goods such as refrigerators, AC etc. The rate at which currently these goods are taxed is far lower than the rate at which these goods would be taxed i.e. @ 28%.
- Other goods which will also get expensive are:
- Restaurant and hotel bills
- Jewelry and precious metals
- Courier Services
- Mobile bills
- Transportation services
Goods and Services that will get economical:
The cost of the goods and services now is higher when these goods are taxed in present tax regime. The reasons behind this are many such as Cascading effect i.e. tax on tax and double taxation i.e. goods are taxed twice. The cost of the goods gets higher because on many of the goods there is levy of excise duty @ 12.5% and also state tax VAT @12.5%- 15%, In some case there is no credit available for the tax paid (in case of CST, octroy, entry tax) which also adds up to the cost of the product.
Under the current tax regime, the consumer is paying near about 25% in excess of the actual cost of the product because of excise duty and VAT. But with the entry of GST in indirect tax regime, the rate of tax levied on all the goods would be around 18% which will reduce the cost of the products.
The goods which will get economical are:
- Basic necessities such as toothpaste, oil etc.
- Fast moving consumer goods (FMCG) goods such as chocolates and processed foods etc.
- Pharma Products
- Online Shopping
- Wooden products
- Movie tickets
- Solar panels
- Air coolers, fans
GST would be the biggest tax reform which would cover many taxes in a single blanket tax system. GST is designed to implement consumption-based system in the place of production-based system. It is sure that the GST would have benefits for all the people of the economy but the thing is that the benefit to common people will reach after the benefits has been taken by the business houses from the outbreak of the GST. This new tax regime has many expectations for the welfare of the economy.
About the Author
Arpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.