Tomato sold for Rs.100/- yesterday.
A suburban branch of a restaurant chain increased the price of Idli vada to match that of their more premium outlet. When asked why, we were told – uniform tax rate so uniform prices.
Rickshawalla says he plans to keep all the cash in his house under his pillow, because if he goes to deposit the money in the bank he will be fined. He was planning a morcha against GST.
Conversations about GST are everywhere – in the lift, in the train, while waiting for billing in the counter… And these are so grossly misled and misleading.
What we need is a morcha against ignorance. The government should put out public information on GST and its impact on people of different walks of life.
They could use this little write up if they want to, or they can come up with saner ones themselves. This is my little attempt to help..
GST will impact you in different ways depending on the roles that you play. You can be running a business, you can be consuming some products or you can be investing in some companies. GST will in some way impact you. Read on to see how..
If you are running a services business
I run a services business.
Earlier I used to collect 14% service tax from my clients and deposited the same to the government.
I paid service tax for all the services I used – rent for my office, electricity bill, telephone bill, transportation bills etc. out of my pocket.
Now, I have to collect 18% GST from my clients. But I don’t have to deposit all of it. I pay GST for my office rent, electricity bill etc. I get to adjust the GST payable with the GST already paid. I only have to deposit the difference.
The GST rates for different products were fixed at 5%, 12%, 15% or 28%, based on whichever number is closer to the earlier tax rate. As far as my math knowledge goes, 14 is a number closer to 12 rather than to 18. A GST rate of 12% instead of 14% service tax would have been most welcome. But with being able to get input credits, I think it is status quo as far as tax outgo is concerned.
If you are running a manufacturing business
For most businesses like trading or manufacturing – a 12% or an 18% GST rate is lesser than what they were paying as Excise duty + Octroi + Sales tax + VAT + Swachcha Bharat cess etc.
Lesser tax is good enough but the sweetener here is the lesser compliance efforts as well. With just one tax to pay, you deal with only one government body and file just one set of returns.
If you are running a retail business
If as a retail business owner you were dealing largely in cash and had less amount going through the system, GST is not so good news for you.
Getting a GST registration and accounting for all your business income and expenses will become compulsory. If you don’t do that you will be breaking the chain. For eg: GST will be charged to you by your vendors, but you can’t charge GST to your customers nor can you get a set off.
Which means all your sale has to be brought in the system and all incomes have to be accounted for. So, your income tax liabilities might go up.
But now you also have a good reason to scale and become a large player. Costs will be uniform across the country and geography need not be a restriction anymore. E-commerce traders will enjoy this benefit the most. Small retailers get a benefit of the composition scheme where tax can be paid @1% of sales value and also relaxation in maintenance of accounts and records. More about this here.
As a consumer of all kind of goods and services
As a consumer, all incidence on taxes fell on you anyway, even before GST. But now more or less of it might fall on you.
You would buy a car once in 4 – 5 years or a house once in a lifetime. Instead of comparing those costs, let’s look at more common things that you would spend on.
According to a study by Standard Chartered bank worldwide on the top spends of mass affluent families in emerging economies, Indians ranked Children Education, Travel & Entertainment and Buying new technology gadgets as top spends. Their top two goals in life are to Buy a Property and Set up a business.
How are these going to be impacted?
Children education –
No impact on school education costs as primary education is out of the GST tax net. However private tuitions may be taxed.
Higher education in special courses offered by private institutions may be taxed.
Read more about this here.
Travel & Entertainment
Economy class flight ticket, Ola /Uber costs will come down marginally. VAT earlier was 5.6% – GST will be 5%.
Hotel rooms were earlier taxed at 19% and food and beverages were taxed at 18.5%. They will now be taxed at 18%. But when hotel room prices cross Rs. 7500/- the slab moves to 28% making rooms more expensive at the higher end.
But the hospitality sector stands to reap the benefits easy and better utilization of input tax credit and uniform and standardized tax rate across the country.
Movie tax will be 18% vis a vis earlier entertainment tax of 35-40% in various states.
Smart phones may cost a bit less as GST will be 12% against 13.5% of various taxes put together earlier.
Motorbikes, luxury cars and some electronic gadgets will get expensive.
The impact is close to negligible here, if you consider the whole range of products that you would be spending on.
Purchase of property
Input tax credit would make a significant impact in the cost of properties.
There are a lot of products procured for property construction on which there is double taxation at present. The cost borne by builders for these come to 20 to 25 per cent. With the GST rate of 12%, it will effectively reduce the cost of production for developers.
Developers if they will so can pass a part of the benefit to the buyers thereby reducing cost of houses. What is not to like in this?
Read more about how cost of some products will be impacted by GST here.
Is there a larger good?
While we look at it microscopically at impact on our lives, is there a larger good that this will serve?
Use a bit of common sense – if compliance costs come down doing business becomes easy and we can attract more investments. Lower costs means more profitable businesses. More profitable companies seek to expand and so employ more people. Better employment leave more money in the hands of common people who in turn will spend more which will result in more revenues for goods and services sold to them. That is how the growth spiral sets in.
Experts expect a 2% positive impact on GDP growth – which means GDP growth rate will be pushed to near double digits.
The naysayers will be naysayers. The uncouth businessman will use this opportunity to increase prices and blame it on GST. The dishonest politician will create panic by saying you will have to spend more on rice and dal. Media will report some random accident to GST to earn TRPs.
But you know better than that. Keep the faith and embrace change.
With change comes growth. Jai Hind.