GST or Goods and Services Tax was introduced in July 2017 in India. While it has been widely discussed the details of it are still often unclear to the common man,
Here’s an explainer to simplify your understanding:
-Presently, there are around 160 countries that have implemented GST/VAT in some form or other. In some countries, VAT (Value Added Tax) is the substitute for GST. But, conceptually it is a destination based tax levied on consumption of goods and services.
-France was the first to introduce GST or Goods and Services tax.
-Presently, only Canada has a dual GST model (somewhat similar to the Dual GST Model that India has implemented).
-The rate of GST normally ranges in between 15–20% only. However, it may differ to a higher/lower side in some of the countries.
-The rates of GST play a crucial role in its successful implementation. Various countries have been struggling to rationalise the rate structure.
-India finally launched the new GST or Goods and services tax after crossing the various hurdles that came its way.
What is GST or Goods & Services Tax?
-GST or Goods and Services Tax is an indirect tax applied both on goods and services at a uniform rate. This means goods and services will be subject to a uniform tax rate and both will be treated at par.
-A single form of tax known as GST or Goods and services tax will be applied throughout the country, replacing a number of other indirect taxes like VAT, Service tax, CST, CAD etc.
-Being a new law, a new tax, GST brought with it new challenges to overcome therefore extra caution needs to be exercised.
-The GST bill covers the Goods and Services Tax i.e. the biggest indirect tax reform providing a uniform and simplified way of Indirect taxation in India. GST replaced a number of other indirect taxes like VAT (Value Added Tax), CST (Central Sales Tax), Service tax, CAD, SAD, Excise, Entry tax, purchase tax etc.
-A bunch of indirect taxes got replaced by a new tax in India known as GST or Goods and Services Tax subsequently leading to a much simplified tax regime as compared to the earlier complicated tax structure comprising of numerous taxes.
-Whenever a new reform or bill is introduced or a new law is imposed, it certainly impacts the common man. Ultimately, it is the common man who is directly or indirectly affected by the implementation of any new tax.
What is the impact of GST on the common man?
When we say ‘common man’ we’re referring not only to the final consumer of goods but all the small traders and service providers who are directly affected by the introduction of GST.
A look at the pros and cons of GST.
GST SLAB RATES
Items rated ‘zero’: Foodgrains used by common people.
5%: Items of mass consumption including essential commodities will have low tax incidence.
12% and 18 % have been finalised as two standard rates.
28% : White goods like air conditioners, washing machines, refrigerators, soaps and shampoos etc.that were taxed at 30-31% shall be now taxed at 28%.
Demerit goods like tobacco, tobacco products, pan masala, aerated drinks and luxury cars shall be charged at the highest rate of 28%. An additional cess on some luxury goods shall also be imposed.
Services that were earlier taxed at 15% shall be taxed at a higher rate of GST @ 18%. Various goods have been classified to fit into the above categories.
Note: The GST rates given above are a general overview of rates when the new tax system was initially launched. Since then, GST rates have been revised on various occasions and might vary on different category of items. Kindly check the respective rates from a tax consultant.
Pros: Positive impact of GST on the common man
-GST was launched as a unified tax system removing a bundle of indirect taxes like VAT, CST, Service tax, CAD, SAD, Excise etc.
-GST or Goods & Services tax removes cascading effect of taxes i.e. removes tax on tax.
-Due to lower burden of taxes on the manufacturing sector, the manufacturing costs will be reduced. Hence, prices of consumer goods likely to come down.
-Due to reduced costs some products like cars, FMCG etc. will become cheaper.
-This will help in lowering the burden on the common man who has to spend less money to buy the same products which were earlier more expesive.
-The low prices further lead to an increase in the demand/consumption of goods.
-Increased demand will lead to increase in supply. Hence, this will ultimately lead to rise in the production of goods.
-The increased production will lead to more job opportunities in the long run. But, this can happen only if consumers actually get cheaper goods.
-It will curb circulation of black money. This can happen only if the ‘kacha bill’ (Ivalid Bill ) system, normally followed by traders and shopkeepers is put to check.
-A unified tax regime will lead to less corruption which will indirectly affect the common man.
-Most importantly, experts hope to see a positive impact of GST on Indian economy in the long run.
But, this is possible only if the actual benefit of GST is passed on to the final consumers. There are various other factors also like the sellers profit margin that determine the final price of goods. GST alone does not determine the final price of goods. The anti-profiteering clause has been inserted in the GST Act to protect the interest of the consumers
Cons: Negative impact of GST on the common man
-Compliance burden: You need to deposit GST and file returns on time.
-GST returns filing is not as easy as it seems to be. You need to hire a tax professional to manage it.
-Thought the government is taking steps to simplify the returns filing and keep it simple. But, still it will take time to actually smoothen the entire process.
-Big businesses with sufficient staff can handle the whole process easily. But small traders/service providers or individuals who have just started their business or service, will face greater complexity.
-Service tax rate @ 15% is presently charged on services. So, if GST is introduced at a higher rate which is likely to be seen in the near future, the cost of services will rise. GST shall be charged @18% on maximum services and shall reach upto 28% for few services. To simplify, all services like telecom, banking, airline etc. will become more expensive.
-Increased cost of services means adds to your monthly expenses.
-You will have to reschedule your budgets to bear the additional services cost.
-Businessmen and service providers are still learning about the new laws. This will increase reliance on tax experts and professionals and further add to business expenses.
-Actual implications of GST can be experienced after a certain period of time.
-It is a consumption based tax, so in case of services the place where service is provided needs to be determined.
-Proper invoicing and accounting needs to be done to ensure better compliance. However, GST accounting software are being developed in this regard by various companies.
-If actual benefits are not passed on to the consumer and the seller increases his profit margin, the prices of goods can also witness a rise.
-An increase in inflation might be seen initially, thought it may come down gradually.
-A strict check on profiteering activities will have to be done, so that the final consumer can enjoy the real benefits of GST.
Although, a large number of officers have been trained and a systematic IT software developed for the successful implementation of GST, it will take some time for the people including the manufacturers, the wholesalers, the retailers or the final consumers to understand the whole process and apply it correctly.
GST training and courses are being provided by the Government, various institutions and companies to educate the people all around.
However, Goods and Services Tax is a long term strategy planned by the Government. Its positive impact can only be seen in the long run.
A well designed GST Policy can bring a qualitative change in the tax system of India.
When it comes to different sectors, some sectors might have gained, some might have lost. But, ultimately we will have to get used to this new tax. A landmark reform having a great impact on India and its taxation system.
Let us hope GST or Goods and services tax leaves a positive impact and helps to boost up the Indian economy and convert India into a unified national market with simplified tax regime.
A rising Indian economy will anyways help in the financial growth of the common man.
Reference source: https://fintrakk.com/