The Impact of GST On Consumer Goods

The much awaited indirect tax regime “Goods and Service Tax (GST)” is for its roll out from 1 July 2017. The impact of Goods and Service Tax on the common man is going to be enormous.

GST will subsume indirect taxes such as service tax, central excise, and cesses along with state levies including VAT and entertainment tax by a single levy, consequently resulting in a unified national market. Furthermore, the manufacturer, traders and service providers will be entitled to a seamless tax credit on inputs that will also drive down prices as indirect tax embedding via the imposition of tax on tax inflates the final price. By minimizing the manufacturing costs and boosting efficiency, Goods and Service Tax is expected to result in GDP growth by 2 percent.  GST seems like a mixed bag for most of the common man of India.

GST will simplify India of its complex and complicated indirect tax structure and will ensure a single unified tax regime, which will be reshaping India’s indirect tax structure.

Tax experts and Economists see it as one of the biggest tax reform since independence.

The existing taxes on most of the consumer goods is on the higher side. Most of the goods (for e.g. electronics, beauty products, non-luxury automobiles) attract an excise duty of 12.5% and a state levy of VAT at 12.5% to 15%. Additionally, in the current scenario, there is numerous cascading effect i.e. tax on tax on the account of CST, VAT, Octroi, entry tax, local body tax, etc till the product reaches the ultimate end-customer.

A combined effect of such indirect taxes leads to an effective tax rate of 25% to 30% and the burden is solely on the end customer. With the unified rate of GST, the prices of the most goods would reduce significantly in the overall indirect tax cost. This decrease in indirect tax can lead to decrease in manufacturing cost and increase in baseline profits, giving ample space for reducing prices and benefiting end-users.

What will get cheaper?

  • Branded goods: The Indirect Taxes on branded goods have been fallen to 18 percent. At present, the effective rate of tax for these items is pegged at 23-24 percent.
  • Hotels and Restaurants: Hotel stay after the implementation of GST will become cheaper. Currently, the tax rate on staying in hotel taxed at the rate of 22% which will come down to 18% tax bracket. Good news for the people who love to eat out as the tax on restaurant slashed from 22 percent to 18 percent.
  • Food grains will get cheaper under GST regime.
  • Processed food products that attract 15% tax rate under the existing scenario will be taxed at 5% under GST.
  • The tax rate on Entertainment services will come down from 22 percent to 18 percent under GST.
  • The soap which is taxed at 28 percent under existing tax regime will be taxed at 18 percent under GST. Likewise, toothpaste will be brought down 18 percent from 22-24% current tax system.
  • Personal hair products – Hair oil will be cheaper as the tax rate will come down to 18 percent from existing tax rate of 28 percent.
  • Entry level cars, two-wheelers, electrical items, paint, cement, consumer durables are likely to get cheaper under the GST.

What will hurt your pocket:

  • All luxury goods, tobacco products, and aerated drinks are likely to be taxed at 28 percent.
  • Taxes on Tea-coffee and masalas from 3-9 percent will go up to 5 percent under GST.
  • Insurance premiums, Mobile bills, the internet, wifi, DTH service and banking charges will get costlier.
  • School fees, air tickets, and courier services will be a little more expensive under GST.
  • Small cars will be a little expensive under the GST regime, with a maximum tax rate of 28 percent.

No tax will be levied on the following items:

Printed books, newspapers, bangles, handloom, natural honey, eggs, fresh meat, curd, milk, buttermilk, fresh fruits, prasad, salt, stamps, judicial papers, vegetables, flour, besan, bread etc.

Conclusion:

Goods and Service Tax, with end-to-end IT-enabled tax mechanism, is likely to bring buoyancy to government revenue.  It is expected that the malicious activity of tax theft will go away under Goods and Service Tax regime in order to benefit both governments as well as the consumer. In reality,  that extra revenue that the government is expecting to generate won’t come from the consumers’ pocket but from the reduction of tax theft.

AlignBooks is contributing to this massive transformation by bringing an end to end cloud based platform which connects the entire GST chain of input and output with a direct interface to built-in accounting modules which gives you real-time business updates much “Beyond Accounting”.

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