France was the earliest country to initiate Goods and Services Tax or GST. At present, around 160 countries have imposed GST/VAT in some form or another. Some countries have VAT as the substitution of GST. Still, concept-wise, it is a destination-based tax imposed on the consumption of goods & services.
GST is a tax that replaced many indirect taxes in India. The Goods and Services Tax was implemented in India with effect from 1st July 2017.
Here in India, the maximum population is of the middle class and lower middle class where people either belong to the service class or they depend on agriculture for their living. In this scenario, the most important question is what is the impact of GST on a common man or a middle-class family.
For the general public, the actual impact of any economy is when the prices of their necessities become affected. For the public in large when prices become low for the day-to-day goods and services that are consumed, the economy is good else if the inflation rate is higher, then the public gets unsatisfied with the changes done by the government.
For any government policy, it is important that the satisfaction in public is must as without satisfaction the policy will not succeed in the same way in which the government had planned.
An Overview Related to GST :
Lets better understand the impact of GST on various sectors through examples:
1. Household Sector :
In GST, the food items are under (0-5) % tax rate which will not directly impact on the food prices.
Cosmetic services like salon and beauty services are known to become expensive with an increased 3% GST rate upon them along with no benefit on input tax credit on such services.
Daily household items cost have enhanced due to the implementation of the Goods and Services Tax (GST) regime as the user being the end consumer cannot pass on the tax burden further, thus leading enhancement in the prices.
2. Automobile Sector :
3. Real Estate :
4. Apparels and Footwear :
After GST the price of garments and made-up articles get decreased. Now the price of garments and made-up articles below the range of Rs 1,000 per piece will attract a 5% GST rate.
Whereas the garments and made-up articles priced above the range of Rs1, 000 per piece will attract a 12% GST rate.
5. Taxi/Cab Services :
If a customer takes a taxi service in which the ride costs 100 rupees, then there will be a substantial change in the tax as previously there was around 6% of service tax while in the GST it is now levied at 5% which will be a marginal saving for the customer.
6. Air Travels :
In case, a customer books flight tickets Indian in a domestic economy class of INR 1000, then the tax rate is varied in both the cases.
Previously there was around 6% of service tax applicable in domestic economy class, while in the GST, the economic class is taxable at 5%, which will result in slight savings.
While talking about the business class, the tax rate in GST has been increased from 9% to 12%, resulting in an expensive business-class tax case.
7. Jewellery :
After the GST, the tax rate is increased by 1% thus reached from 2% to 3%.
Investment in gold becomes expensive because now the buyer has to pay 3% GST on gold and 5% on the making charges.
8. Mobile Bills :
GST has increased the burden of mobile phone users.
Both the pre-paid and post-paid users have to pay more bills due to an increase in the tax rate by 3% ( 15% to 18%).
9. Restaurants :
If in case, a customer orders a meal for INR 1000, then there will be substantial savings on the restaurant bill.
In the earlier tax scheme, there was VAT at the rate of 12.5% and service tax @ 6% totaling at around 18.5%.
While under the GST, all standalone restaurants ( whether AC or Non AC ) taxed @ 5 % without the benefit of ITC thereby leading to cost reduction in the restaurant Bill.
Positive Impacts of GST on common man :
Negative Impacts of GST on common man :
As discussed above we have seen that GST has both pros and cons for the common man in some sectors it leads to curtailment in final prices while on the other hand an extravagant increase in final prices were seen. One benefit which it has passed to all is elimination of cascading effect ( Tax on Tax) which leads to lowering of prices of the end product.
For a middle-class family, the main issues are Roti, Kapda, and Makaan. Initially, the country is troubling with the new tax regime due to the four slab rate structure under GST. For the long term, the country will be benefited with the new Goods and Service Tax (GST) Regime as it had made a clear and partial way of understanding the personal finances.
Every effort has been taken to provide an insight about this topic and to cover all important areas of it , any suggestions and improvements will be welcomed and highly appreciated.
Compiled and Written by : Vaibhav Singh | GST Practitioner