Here’s how Indians will benefit from GST

Here’s how Indians will benefit from GST

India is ready for the rollout of Goods and Services Tax (GST) from July 1st, 2017. GST will impact businesses of all scale and sizes and transform the corporate landscape. Most of all, the new tax regime will bring in more transparency, increase efficiencies and enhance the ease of doing business in India. Naturally, the life of us citizens will alter to a large extent.

Items of daily use could now be cheaper

One ongoing concern about the GST impact was the pricing factor of goods and services of daily use. However, the latest announcement by the GST council that has released the tax rate for 1211 items spells good news for the common man. The tax rate on 81% items of daily use has been capped at 18%, which is a modest rate of tax. In the services sector, 90% of services have been put in the 18% tax bracket, and 63 essential services including education, healthcare, select Government services are exempt from tax. Overall, the GST is pro-growth as it is expected to reduce the tax burden on consumers.

What is cheaper :: Keeping in mind the needs of the average Indian men and women, items such as fresh vegetables, meat, jaggery, honey, papad, prasadam, bindi, and sindoor have been exempted from GST. Essential services like education and healthcare being kept out of the GST ambit. Travel by metro, hotels with a tariff below ₹1000 and religious travels have also been exempt from GST.

If this list seems skewed towards the rural and semi-urban populace, the urban city dwellers don’t have much to worry about as items synonymous with the urbane such as mineral water, tissues, ice cream, jams and sauces, cake and pastries, pasta and soup, preserved vegetables and cornflakes remain in the tax bracket of 18%. The urban populace has further reason to rejoice as restaurants and watching movies will become cheaper as they come under the 18% tax bracket, a drop from 22-25% earlier. Non-AC restaurants, however, have been granted the leeway of charging 12% GST on food bill.

Economy class airfares are also expected to come down as they will now fall in the 5% tax bracket. The 5% tax rate is also applicable to radio taxi service providers. However, business class airfares will attract a GST of 12% and premium hotel accommodation will attract GST of 28%.

What is expensive : Items that will attract the highest tax include aerated drinks, pan masala, dishwashers, washing machines and weighing machines, shampoo, deodorants, paints, dye and ceramic tiles. Also becoming dearer are financial transactions (banking charges, insurance premiums and other fees), online shopping, courier services, school fees, Wi-Fi and DTH services. The list released by the GST council thus far is indicative of the fact that the common man on the street will not have to shell out more money to feed his family. In fact, there will be a likely reduction in costs on items of daily use.

The GST slabs on services, however, has been a tad disappointing especially for the urban dweller who is disoriented at the moment as he will soon be expected to shell out more for banking transactions and use of the internet. This seemingly goes against the Government push on the usage of online banking services and digital India.

Skepticism alive on multiple rates

One of the major contentions of GST between Government officials on one hand and policymakers and economists, on the other hand, has been on the rate of inflation after GST implementation. International experiences in countries such as Singapore and Malaysia has shown that GST has stoked up inflation considerably at least in the short term. If India faces similar inflationary pressures as a result of GST implementation, the central bank will have little choice but to cut interest rates to prop up growth.

However, Government officials, including the Finance Minister Arun Jaitley, seem confident that GST implementation will not be inflationary. as a majority of items that thus far attracted a tax rate of 32% will now be subject to a lower tax of 28%. They also believe that since service providers will benefit from input tax credit the effective tax rates will be lower.

The attempt at pacification is not enough as of now. Complexities have increased for the services sector that accounts for more than half of India’s economy as there are multiple rates being levied in the same sector. For example, hotels and restaurants will be charged on their rooms tariffs and turnover. Therefore, eating out in a non-air conditioned restaurant or staying in a cheap hotel room may work out to be cheaper while dining in style and staying in a luxury hotel may turn out to be more expensive than before. The Government, however, defends its stance saying that different economic sections cannot be taxed under a uniform tax regime.