How will GST impact the commonman

India’s biggest tax reform GST is finally here. In the past couple of months, there have been many speculations about how it will affect businesses and consumers alike. Will goods and services become cheaper or costlier? How will it affect daily expenditure?

In order to understand what GST is and what compelled the Government to introduce it, let us first look at the 2 types of taxes in India:

●    Direct Tax - Income Tax that is deducted from your salary

●    Indirect Tax - VAT, Service Tax, CESS, Luxury Tax and the list goes on.

Indirect taxes differ from state to state and make it difficult to manage taxes while moving them from one state to another. Often people look for loopholes to avoid paying these taxes while some are simply unaware of which norms should be followed. The Government thus stands to lose a lot of revenue due to some ignorant as well as wilful defaulters.

To eliminate all these hassles and bring in uniform taxation across the country, the Government introduced GST. The main intent behind it is to establish a cooperative undivided Indian market to make the economy stronger and powerful.

What is GST?

GST or Goods and Services Tax will be applicable on a supply of goods and services and replace the current taxes of excise, VAT and service tax. It is aimed at bringing uniform taxation across the country and allow full tax credit from the procurement of inputs and capital goods which can later be set off against GST output liability. The move will be applicable to large companies as well as SMEs.

All manufacturers and sellers, as well as service providers (CAs, Lawyers, etc.), will have to pay GST but being an indirect tax, the expenses will be borne by consumers in the end.

Types of GST

Similar to the Canadian model of Dual GST, India will implement and collect both the Centre and State GST. There will be 3 types of GST:

●    CGST- Collected by Centre

●    SGST- Collected by State

●    IGST- Applicable on inter-state sales to ensure smoother transfer between Centre and State

Now comes the interesting part: How will GST impact you - the end consumer

While some basic necessities have gotten cheaper, some are going to cause a dent in most household budgets. These commodity rates are said to be determined after researching whether they will be used by a rich person or a common man. The proposed new rates are: 5%,12%, 18%, 28% (+ luxury cess).

One good news is that almost half the items in the CPI basket will not be taxable. So grains, fruits and vegetables, essential medicines, eggs and meat, milk, newspapers are said to come under this exemption

Although, there is a demand for few more additions that need to be exempt from taxation. Like most initiatives taken by the Government, GST too has its fair share of supporters and detractors. It is hoped that post 1st July 2017, many problems caused by the current indirect tax system will slowly be eliminated. Goods will be able to move freely across state borders with minimal compliances thus reducing their cost to an extent. And with prices coming down, consumption and subsequently production will increase. Thereby helping the growth of many industries.

Till then we will have to wait and watch how GST will impact our social, political and economic situation in the long run.

Feedback and comments welcome,

 Rakesh Jain

[email protected]