How GST Will Impact The Wallet Of The Common Man


How GST Will Impact the Wallet of the Common Man

What is GST?

The objective of GST (Goods and Services Tax), implemented across India on 1st July 2017, is to replace the complexity and repetitiveness of the earlier indirect tax regime with a single unified tax structure. This, in turn, will control the tax burden and its cascading effects on the common man.

GST is categorised under two broad classifications:

  • Central GST or CGST payable to the Central Government of India
  • State GST or SGST levied by the State Governments and Union Territories

Why was GST implemented?

A single unified tax structure implies that the common man now has to pay only one tax to the manufacturer of goods and services across the supply chain. Apart from unifying and simplifying the tax system, GST is also expected to control lack of leakages, which was a typical fallout of the previous taxation system.

GST levied on the customer will include the tax charged during the last stage of the supply chain. This is in contrast to the previous tax structure in which taxes charged across the supply chain was transferred onto the end-customer. Taxes affected by GST are Service Tax, Excise Duty, Countervailing Duty (CVD), Special Additional Duty of Customs (SAD), and other central and state taxes. What’s more, a combination of CGST and SGST/UTGST, referred to as Integrated GST, was levied on inter-state supplies.

Another benefit to the common man is that GST will be levied on the value of goods and services, as opposed to being added to the price of goods that included Central Excise. Hence, GST is estimated to have a far-reaching impact across the supply chain - manufacturing, dealers and distributors, warehousing, marketing and pricing.

In terms of impact on prices, while services would mostly be more expensive in the initial phases, impact on prices of goods could be a mixed bag. In the long run, once the benefits of GST are expected to kick in in terms of higher input credits and reduction in cascading effect, it is anticipated that the inflationary effect will come down and prices, in general, would come down and stabilise.

Impact of GST

It is estimated that GST will have a positive impact, but in the long run. Taxes affected by the GST will lead to the increase in prices of certain goods and services, causing inflation. However, once the inflationary effect sets in, it will ultimately reduce and stabilise the pricing process.

Taxes affected by GST have had two distinct impacts on the prices of goods and services. A hike in tax rates of certain goods and services has increased the prices of those goods and services, while a decrease in the tax rates of some other goods and services has brought down their costs.

How taxes affected by GST will make goods and services expensive

  • Goods like textiles, edible oil, etc., attracted a 5% VAT in a vast majority of the state and nil excise duty. However, with the implementation of GST, the prices of these goods have now increased by about 8% to 9%, proving to be heavy on the common man’s pocket.
  • The previous service tax of 15%, which was applicable on certain basic essential services like health services, sports and cultural events, and pilgrimages, has increased to 18% under GST.
  • The prices of goods that are injurious to health like aerated drinks, cigarettes and other tobacco-based goods have also witnessed a hike in their prices.

Apart from the above, the following goods have also become costlier because of the taxes that have been affected by GST:

  • Transportation services like cabs, railways and air
  • Restaurant and hotel bills
  • Internet packs of mobile phones
  • Courier and DTH services
  • Luxury cars
  • Jewellery and precious metals

How taxes affected by GST will reduce the prices of goods and services

  • Prices of goods like non-luxury automobiles, beauty products, consumer electronic gadgets, etc. earlier attracted excise duty at 12.5% as well as state VAT between 12.5% and 15%, depending on the state levying it. Not just these, there are a host of other taxes - input tax credit retention under the VAT regulations, CST, entry tax, octroi and other local taxes, which were added to these goods at various levels of the value chain, till it reached the end-customer. However, the concept of single unified tax structure has eliminated these taxes from being repeatedly added to the prices of the goods and every stage of the supply chain.
  • The previous taxation system required the consumer to pay nearly an extra 25% to 26% on the production cost of goods as a result of VAT and excise duty. The introduction of GST has brought down this interest rate to 18% for most of these goods.

Here are some goods that will get cheaper because of the taxes that have been affected by GST:

  • Pharma products
  • Cement, paint and several construction products
  • Solar panels
  • Fingerprint scanners
  • Fans, television sets, air coolers, water heaters and other consumer electronics
  • FMCG (Fast Moving Consumer Goods) products chocolates, processed food items, shampoos, etc.
  • Plywood and other wood-based goods
  • Branded apparel
  • Online shopping
  • Movie tickets

From the above discussion, we can conclude that GST will have a dual effect on the common man – positive and negative. It will be interesting to watch the cascading effect and its subsequent effect on pricing in due course of time.


Keywords: what is gst,income tax


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