29th May 2017
GST impact on common man in just 7 easy to understand points.
The Lok Sabha today was locked in a marathon seven-hour debate which will hopefully end in the passage of the GST Bill. Since August of last year, when the 122nd Amendment was passed by the Rajya Sabha, the country has been preparing to change the way it pays taxes.
The Lok Sabha today was locked in a marathon seven-hour debate which will hopefully end in the passage of the GST Bill. Since August of last year, when the 122nd Amendment was passed by the Rajya Sabha, the country has been preparing to change the way it pays taxes. The proposed date for GST implementation is the 1st of July, and if you have been wondering what the fuss is all about, hopefully our seven-point introduction to GST will save the day:
What is GST?
GST or Goods and Services Tax is applicable on supply of goods and services. It will replace the current taxes of excise, VAT and service tax.
Why is GST needed?
Currently there are different VAT laws in different states. This creates problems, especially when businesses sell to different states. Also, most businesses have to pay and comply with 3 different taxes – excise, VAT, and service tax.
GST will bring 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. This reform gives equal footing to the big enterprises as well as SMEs. The aim of GST is thus to simplify tax hurdles for the entire economy.
Who will have to pay GST?
GST will be paid by all manufacturers and sellers. It will also be paid by service providers such as telecom providers, consultants, chartered accountants etc. However, being an indirect tax, GST will be ultimately borne by the end consumers, just like in the current process.
What kind of GST will be implemented in India?
India will implement the Canadian model of Dual GST, i.e., both the Centre and State will collect GST. There will be 3 types of GST:
CGST- Collected by Centre
SGST- Collected by State
IGST- Applicable on inter-state sales. It will help in smooth transfer between states and the Centre.
What will be the GST rates?
The GST rates have not yet been passed by the Lok Sabha. The proposed rates are:
5%,12%, 18%, 28% (+luxury cess).
Food grains will have 0% tax to provide relief to consumers.
How will GST impact you?
Expect reduction in prices of :
- FMCG goods such as shampoos, chocolates
- Eating out
- Small cars
Increase in prices of:
- Luxury cars
- Aerated beverages
Are there any disadvantages to GST?
Change is never easy. Other countries which have implemented GST before India have faced inflation and price hike during the transition period. However, there are anti-profiteering measures in the GST bills which will keep price hikes in check and stop the economy from blowing over.
Once GST is implemented, most of the challenges of the current indirect tax regime will be a story of the past. India will become a single market where goods can move freely across state borders, compliance will be easier, and costs of daily goods will reduce.