How GST affects me

“Stop getting taxed due to taxes – know the law and its impact on you!”

GST is set to change the face of the way business is done in India, bringing in more transparency and greater ease of doing business. As a consumer, read on to know how this impacts you..

What is GST?

The Goods and Services Tax (GST) is undoubtedly the biggest reform in India’s indirect tax structure in several decades. This is how it completely changes the existing system of taxes:

Old System:

I am a seller of boxes. I buy materials worth Rs. 100, which bears Rs. 10 excise tax (tax on manufacturing). I process it to make the box valued at Rs. 130. Assuming a 10% VAT tax rate (tax on value added), my tax liability is Rs. 13 (i.e. 10% of Rs. 130). The total tax paid to the government is Rs. 23 (i.e., Rs. 10+13). The cost for the consumer increases by Rs. 23 on account of taxes.

GST System:

Under the GST regime, the tax paid by me of Rs. 10 on the materials can be set off against my tax liability of Rs. 13, thereby my net liability being Rs. 3 (i.e., Rs 13-10). Effectively, I pay Rs. 3 as tax. The total tax therefore on the box is Rs. 13 (i.e., Rs 10+3). The cost to be borne by the consumer due to taxes is Rs. 13.

Currently, only the same type of tax can be set off against the tax liability, i.e., VAT paid by me can be set off against my VAT liability, but under GST, all central- and state-level taxes and levies on all goods and services will be integrated, and can be set off against each other, based on certain conditions.  Also, currently, different rates of taxes are prevalent on different goods and services; all these will be replaced by a single rate of tax, barring a few items.

This will ensure a complete, comprehensive and continuous mechanism of tax and tax credits. Under it, there will be tax only on value addition at each stage, with the producer/seller at every stage able to set off his taxes against the GST paid on his purchases. The end-consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Industry wise impact

INDUSTRY

CURRENT TAX REGIME

GST REGIME

IMPACT ON CONSUMER

OVERALL IMPACT

Automobile

30 to 47%

20 to 22%

Will reduce cost by about 10%

Positive

FMCG

24 to 25%

17 to 19%

Will reduce costs by 2-3%

Positive

Airlines

6 to 9%

15 to 18%

Will increase costs, taxes will almost double

Negative

Cement

27 to 32%

18 to 20%

Will reduce costs

Positive

Multiplexes

22 to 24%

18 to 20%

Will reduce costs

Positive

Textile and garments

6 to 7%

No clarity if lower rate will prevail

IT services

14%

18 to 20%

Export of IT services will continue to remain exempt

Slightly negative

Telecom

14%

18 to 20%

Costs will increase

Negative

Banking and financial services

14%

18 to 20%

Costs will increase

Negative

GST was first introduced in the Parliament in 2007-08, and may not be implemented before 2017-18. It has taken over 10 years for it to be passed by the Rajya Sabha. It is definitely a sign of progressing towards a more transparent and less burdensome system of taxation in the country. However, its true success will only lie in its effective implementation.

 

Namita Shah 
on 08 August 2016
Published in Taxation
Views : 1364
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