Basic goods and services to pinch hole in pocket

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Unless the rate is low, common man will have to pay more

The GST Bill, which was cleared by the Rajya Sabha, is the culmination of mo-dest efforts began with the introduction of MODVAT exactly 30 years ago. As the passage was the result of difficult political process spread over several decades, it obviously calls for celebration.

Except for statements by experts about GST boosting economy by two per cent, people are in dark about what the GST entails and how it affects their daily life through inflationary effect on basic products and services like food, housing, education, clothing, medicine and healthcare, telephony, utilities and travel.

The litmus test for the Centre is the GST rate, which would determine whether prices will go up or down and whether people would like it or not.

While the government has not revealed its cards, a committee head by chief economic adviser Arvind Subramanium recommended 18 per cent rate.

The finance ministry and some states, however, appear to be inclined for 22 per cent.

Currently, manufacturers, other than exempted categories, pay around 25 to 30 per cent tax, which includes excise duty and VAT. Manufacturers with less than Rs 1.5 crore turnover pays around zero to 12.5 per cent VAT — high value products, salt, etc will have zero per cent VAT, essential goods four per cent and all others at 12.5 per cent. Service providers pay 14.5 per cent service tax.

The GST regime, it is speculated, will have three slabs — 12 per cent for essential goods and services, 18-22 per cent standard rate for all goods and services, 40 per cent for products that the government wants to discourage.

According to rating agency ICRA says, “The incidence of tax on various goods and services would change, depending on the final rates.”

Whether GST rate is 18 per cent or 22 per cent, ICRA says the GST rate applicable to services is expected to be higher than the current service tax rate. So eating out, air travelling, gym, coaching, investment advisors, real estate agents, cab services, etc will become costly.

“GST is equally applicable to all sectors and is not sector-wise as in China, which has separate rates for financial services, manufacturing, transport etc. India follows the Canadian model that is relevant to India as they too have several states,” said S. Mani, senior director, Deloitte.

While primary, secondary and college education are out of GST purview, higher education will be covered. The fees at all these institutions will see a hike in the range of 5 to 7 per cent.

A high GST will adversely affect the healthcare too. “Today, healthcare pays four per cent VAT. Under the GST regime, this is increased to 12 per cent — the lowest slab under GST. Hospital expenses for patients will cost more, said Mr Mani.

So he feels the government should have one more slab for essential goods and services.

Ms Shobana Kamineni, vice-chairperson, Apollo Hospitals Group and president designate, CII, has sought lower GST rate for medicine. “With respect to medicines, we request some leniency. The current tax rate is four per cent, and the proposed 12 per cent maybe passed onto the consumers since the manufacturers have been sev-erely hit by pricing controls.”

Bring promotional material under GST, she said, will also increase the overall cost of medicines.

Currently, agri-based products manufactured by big companies are taxed at 10 to 16.5 per cent (four per cent VAT and 6 to 12.5 per cent excise duty) and those by small companies will be taxed at four per cent. Under the GST regime, all companies could be brought under 12 per cent slab — this will benefit big companies, but not the small ones.

The housing sector will also bear the brunt of higher GST rate. Mr Rohit Gera, MD, Gera Developments and vice-president of CREDAI, Pune Metro, hoped that the final bill takes care of the home buyers and does not raise the cost of homes by raising the tax incidence on homes. “Without addressing the needs of home buyers, the government’s desire of housing for all will not be met,” he said.

In the case of transport, Mr Mani said public transport like buses, trains, taxis etc, are exempted but luxury buses, the Uber and Olas private taxis will come under GST.

Clothing will be more expensive if the GST rate is not uniform on yarn, fabric and apparels, and similarly in the case of the food processing sector, he said. The latter is already subject to VAT and excise and if GST is lower, then the consumer stands to benefit.

Mobile phone services will burn a hole in the pockets of the consumers as the telecom sector will also have to pay 3 to 5 per cent higher taxes in GST regime, says Sachin Menon, partner and head, indirect tax at KPMG, India.

“However, in the positive all the non-creditable state taxes become creditable under the GST regime, which would moderate the increased tax burden. If any of the services that should find place in the merit rate of GST, the first in that list will be telecom services,” he said.

Source : http://www.asianage.com/editorial/basic-goods-and-services-pinch-hole-pocket-748

 

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