It is a tax imposed when a consumer like us buys goods and services.
Found on GST rate and its execution, few basic or we can say essential items may become inexpensive. It’s the most potent tax reform that India will find and see. The aim of GST is to stop the multiple taxes regime on goods and services and bring under one rate.
The taxation system will modify from the present production-based to consumption based. Moreover, it will bring uniformity in taxes across all states. Even though the impact on growth is hard to determine, but a positive impact of around 100-150 basis points (bps) can be considered assuming an “ideal” GST.
As an estimate to provide support to the states, petroleum, alcohol and tobacco have been kept out of the GST view. It can reduce the above mentioned range by a 20 bps. Notwithstanding, it is anticipated that GST will definitely have a positive impact on the growth of India.
The deadline for implementation of GST by Government is 1 April 2016. There is no certainty that it is able to meet the deadline given the opposition faced by the UPA led government. But if this were to be implemented then how it will affect our spending pattern? Will goods and services become more costly than it is now?
Impact on Goods:
If we talk about what the GST will do? Then we can say that GST will replace all indirect taxes that exists at present. All the taxes viz. excise duty, service tax, octroi, luxury tax, etc will become one tax.
Talking about manufactured consumer goods, presently consumer pays somewhere between 25-26% more than the production cost due to excise duty and VAT, but with the GST implementation the rate will be in the range of 18-22%. Taking this into account, basic goods are possibly become cheaper.
Today, goods produced are taxed and the rates are high. In addition to this, tax on tax adds to the build –up in cost. With the implementation of GST, overall taxes are likely to come down ultimately result in decrease in the prices of the goods. Furthermore, producing states will get compensation whereas consuming states will earn revenue.
Currently, essential items like raw food articles are not taxed and this will continue. Hence, essential food supplies prices may not change. Whereas, if we talk about processed food then tax on this will be applicable but it will be less than the present combined tax. Hence, it can be assumed that these goods to become inexpensive.
What about Services?
Currently, service tax is 14% and it applies to almost every services except very few viz. services of ambulance, certain pilgrimages, etc. once the GST is implemented this rate will actually increase and ultimately services become more expensive. So, if you dine out more often or fond of travel, your will is possibly to get higher.
Taking about the premiums on insurance and managing your investment, which basically are tax levied, will also become expensive with higher rate of GST.
What about inflation? It is being talked that lower taxes on manufactured consumer goods and higher taxes on services are likely to offset each other. The net impact on CPI (Consumer Price Index) will be less. But real impact can’t be predicted, as mentioned above that service tax will increase with GST implementation, so if the GST rate for services will be high then there are chances of high inflation.
To conclude, I would like to say that there are many challenges and hurdles to be faced when it comes to the implementation of GST. Will it make our life less expensive or not is yet to be seen. But this is for sure that if your monthly budget is beyond essential goods, then it will make your expenses increase. Furthermore, there will be an inflationary impact, but the extent will depend on GST rate.