How GST will reduce the prices

How will GST reduce the prices? Let's take the example of Movie Industry. Say the cost of making a movie is 100 Crores. Out of which let's say Rs. 50 crores is bills for different services from studios, graphics companies, etc and products (props, costumes, etc) consumed in making the movie. Previously the services had a Service Tax of 15% and the products had a VAT of 15%. So 15% of 50 crores = 7.5 crores was the input tax. The sale of distribution rights has entertainment tax of 15% which cannot be offset against input credit. So the input credit of 7.5 crores was lost. Now in GST regime, say the movie rights/tickets are sold at 150 crores, and the nett GST to be paid is 28% of 150 crores = 42 crores - 7.5 crores GST input credit = 34.5 crores. It's a very simplistic explanation. In reality there are so many taxes even on acting services provided by actors, depending on how they structure themselves, as an individual or a company, services provided by so many other companies. So nett output tax paid will actually be less, as all the input taxes which where previously unavailable, is now available under GST. The movie industry reeks of black money. It's an open secret and that's the reason they are protesting. Or any industry for that matter, is protesting mostly because they can't avoid legal transactions. Doing the business "on bill" not "kachcha" is the only way to avail input credits. There will be some genuine increases in GST, which is acceptable and protest is genuine. Others, especially the entertainment industry should stop whining about GST and get back to work.

And there is something much larger at play. GST is an indirect tax, tax on products, not tax on income. As all transactions become "white", more people will have to declare their income and hence Income Tax (Direct Tax) collections will increase. The Income Tax is currently being bought down from 30% to 25%. As more people pay IT, both income tax rates (direct tax) and GST tax rates (indirect tax) will keep coming down. This is only just and fair that the working and tax paying people do not subsidise the non-working and tax evading people. Let us welcome this. This is a landmark reform, as big as the 1991 economic reforms.