GST Bill likely to benefit common man in long run

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For the last couple of days, one of the major news I can read or hear relates to Goods and Services Tax ( GST). So what does it mean to me as a consumer? The FAQs released by the Ministry of Finance on 3rd Aug 2016 indicates that the consumer will benefit. So how does it work? Let us demystify the concept of GST and its related benefits to ultimate consumer.

It is understood that the design of GST itself will lead to substantial benefits accruing to end consumers. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. Today due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer. Further there will be relief in overall tax burden. This is because under the GST regime, the entire supply chain will be efficient leading to gains and prevention of leakages. This will result in the overall tax burden on most commodities to come down, which will benefit consumers.

However, a crucial aspect in determining the impact on the final price of goods and services is the GST rate. The indication is that most goods and services will be at taxed at standard rate ranging from 17% to 19%.

A common man incurs various expenses on day to day which are charged to indirect taxes. Purchase of goods have a standard excise duty of 12.5% embedded in it and standard VAT of 14% appearing on the face of the invoice. The effective tax rate on goods is around 28% due to ‘tax on tax’ and no input tax credit available to dealer of the excise duty charged by the manufacturer. Service tax is levied at 15% on the services consumed. So optically it seems that goods will become cheaper and services expensive should the rate of GST be a range of 17% to 19%. Accordingly, services consumed by a common man such as telecom, rail transportation, banking, air travel etc may become expensive. Whereas small cars, FMCG products etc may become cheaper.

However, it is important to mention that pricing of goods or services is dependent on many other factors such as possibility of getting credits, competition, profit margin, abatements given for valuation of goods and services etc. Rate of GST is not the only indicator of final price on goods and services.

The essence of GST is that all goods and services be taxed at moderate rate. So in the long run it is expected that the burden of GST on common man will be reduced.

Source: http://economictimes.indiatimes.com/wealth/personal-finance-news/gst-bill-likely-to-benefit-common-man-in-long-run/articleshow/53570923.cms

 

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