GST impact on consumer: Devil lurks in the fine print


Mumbai: Perhaps the most significant adverse impact for consumers could arise because petroleum is out of the GST ambit. Consequently, the tax costs (taxes other than GST will continue) could have a cascading impact on the entire economy. Even the committee headed by India’s chief economic adviser (CEA), Arvind Subramanian, has mentioned “bringing electricity and petroleum within the scope of GST could make Indian manufacturing more competitive”.

Plus, certain challenges currently inherent in the GST structure, such as a GST levy on maximum retail price (MRP) for packaged goods and GST on barter exchanges, will make life tougher for the common man.

Sales Less Attractive

“The levy of GST on maximum retail price (MRP) for sales to final consumers where the product is governed by the Legal Metrology (LM) Act such as mineral water, footwear, apparel, ready-to-eat packaged products would be a nightmare for retailers,” says Sunil Gabhawalla, indirect tax expert. Retail chains are understandably worried.

He illustrates: During a New Year sale, a readymade dress is sold by a retail chain for Rs 1,000 against Rs 2,000. The shop doesn’t have to bear any excise duty (currently) and has to pay a sales tax at 5% in Maharashtra of Rs 50 (against discounted value of Rs 1,000). In most states, the rate varies between 4% and 5%.

Under GST, apparel may not enjoy a nil rate. One can assume it will be subject to the lower rate of 12% (inclusive of central and state levy) suggested by the CEA Committee. The devil in the fine print is that the GST will be levied on Rs 2,000 and not the discounted sale price of Rs 1,000, resulting in a double whammy and a higher tax outgo of Rs 240.

This proposal is contained in the draft model GST law, which is widely in circulation. In this context, Vivek Mishra, indirect tax leader at PwC, adds: “The proposed levy of GST at the MRP even when a sale is made to a consumer at a lower price seems a harsh measure. One hopes that this provision will get deleted before the GST bill is enacted.” Government officials say that this document was not released by the government, drafting work is on and a version will be made available for stakeholder discussion in the coming weeks.

Barter Becomes Complex

Barter transactions of both goods and services are likely to qualify as supply and thus, chargeable to GST. “Though such tax treatment may not impact B2B transactions (assuming credits will be available to businesses), taxing barter in B2C or C2C situation may open a Pandora’s Box and can cause administrative inconvenience in terms of levy and implementation,” points out Malini Mallikarjun, partner, BMR & Associates.

“This could also have a bearing on product-exchange schemes being run by consumer durable companies (eg, exchange of your old car for new). Currently value added tax applies only on the monetary payment paid by the customer. Depending on how the final law is worded, the value of the old car could attract GST,” says Siddharth Mehta, indirect tax partner at KPMG.

Cascading Impact Of Petro
Petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel have been kept out of the GST ambit.
“Input taxes paid on goods/services (covered under the GST regime) used for exploration or production of petroleum products would constitute a sunk cost to the petroleum company, as no input tax credit would be available to it under the GST regime. This in itself would result in a cascading impact,” says Yusuf Hakim, indirect tax partner at CNK & Associates.
“Further, consumers of fuel products, say an aviation company, cannot avail of input tax credit either. In fact, the draft model GST law specifically clarifies that input tax credit cannot be claimed against aviation turbine fuel; this could make air travel more expensive,” adds Hakim.

Question Mark On Housing Construction of houses is covered under GST, even as resale of completed property is not covered. Hence, GST will apply on purchase of property under construction. It is likely that buying a flat could become more expensive, even as the actual impact will depend on the final GST rate and will also vary as per the state-specific duties that are currently applicable.

Source: Times of India (

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