GST effect on Indian citizens
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.
Scepticism 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.
GST
is the biggest tax overhaul that independent India is set to witness.
It promises to simplify tax structure and increase ease of doing
business. However, it will bring with it several complexities for some
service providers and may even stoke up inflationary pressures in the
near term. The overall impact remains to be seen in the days to come.
Here are the various tax slabs as released by the GST council
No tax
• Fresh meat
• Chicken
• Eggs
• Milk
• Butter Milk
• Flour
• Vegetable
• Besan
• Bread
• Papad
• Honey
• Sindoor
• Stamps
• Newspaper
• Bangles
• Handloom
• Printed books
• Healthcare
• Education
• Non-AC train travel
• Lottery
• Air travel in northeast India
• Services by way of slaughtering animals
• Hotels and lodges with tariff up to ₹1000
5%
• Coffee
• Tea
• Spices
• Pizza Bread
• Rusk
• Sabudana
• Kerosene
• Coal
• Cream
• Skimmed Milk Powder
• Frozen vegetables
• Medicines
• Fish fillet
• Economy Airfares
• Radio Taxi services
• AC train travel
• Restaurants with less than 50 lakh turnover
12%
• Frozen Meat
• Cheese
• Butter
• Ghee
• Dry fruits (packaged)
• Fruit juices
• Animal Fat
• Umbrella
• Sewing Machines
• Cellphone
• Agarbatti
• Tooth powder
• Hotels with tariff between ₹1000-2000
• Work contracts
• Business class airfares
• Non-air conditioned restaurant
18%
• Sugar
• Instant Food Mixes
• Pasta
• Jams
• Sauces
• Ice cream
• Soups
• Mineral Water
• Tissues
• Tampons
• Steel Products
• Monitors
• Speakers
• Camera
• Air-conditioned restaurants with liquor license
• Outdoor catering
• Admission for performance arts
28%
• Chocolate
• Pan Masala
• Shaving Creams
• Deodorants
• Sunscreen
• Shavers
• Hairclips
• Motorcycles
• Automobiles
• Vacuum Cleaners
• Washing Machine
• Vending Machine
• Weigh machine
• Dishwashers
• Amusement parks
• Sporting events
• Casinos and gambling
• 5-star hotels and restaurants
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