TomorrowMakers

It's been a year since the Goods & Services Tax have come into effect. Let's take a look back and find out how exactly it has helped citizens and government.

One year after GST: what you need to know

The Modi government rolled out the Goods and Services Tax (GST) on the night of June 30-July 1 last year, effecting the biggest tax reform in the country’s history with the stated objective of simplifying indirect taxation, replacing multiple taxes with one, and doing away with a rash of registrations under various state laws. 

The move was touted as something that would usher in transparency; a masterstroke that was expected to lead to a reduction in prices of both products and services.

Opposition parties have since questioned GST, and trotted out instances to show how it has led to unwarranted hardship for citizens. There may be a certain element of truth in the charge, but the fact remains that tax simplification was definitely needed. India’s taxation system was fragmented, with separate taxes for goods and services; as a result, consumers had to pay multiple taxes levied by the centre and the states.

But now, as a finance ministry statement noted on the first anniversary of the rollout, GST has subsumed over a dozen local levies and transformed India into ‘one nation, one tax’, making the country an ’economic union’. In fact, altogether 17 taxes and multiple cesses were subsumed, which included central taxes such as excise duty and services tax, and state taxes such as VAT and octroi. 

However, what does all of this mean for the average citizen? Have products and services become cheaper, or costlier? Has life changed for the better? 

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Life after GST

Broadly, on the positive side, consumers in India today pay the same tax, irrespective of the state or city they live in. Also, contrary to apprehensions, there has been no significant rise in inflation. However, there are also downsides, and newspaper reports say the full benefits of the new tax regime are yet to percolate down to the consumers in their entirety. 

One benefit consumers are often being deprived of is the input credit under GST. Input credit is a benefit given to the manufacturer whereby they can, at the time of paying tax on a product, subtract the tax amount already paid for inputs such as raw materials. For instance, if tax on the final product is Rs 450 and the tax paid on purchases is Rs 300, the manufacturer can claim input credit of Rs 300, and deposit only Rs 150 in taxes. 

This benefit is supposed to be passed on to the buyer in terms of lower prices. However, a poll by Local Circles across some 215 districts in the country showed 61% of consumers complaining that businesses are not doing his.

The survey also revealed that more than 60% of respondents found that their monthly expenses have gone up, while only a fifth said it had come down. Similarly, over half the respondents said services (mobile services, movie tickets etc) cost more than before. Interestingly, more than 50% of respondents feel that eating out – one of the most popular entertainment options of an Indian middle-class family – has gone up post-GST.

The government has categorised items in five major slabs (0%, 5%, 12%, 18%, and 28%), and at a meeting on November 10, 2017, the GST Council recommended widespread changes in slabs for categories, bringing 177 items under the 18% bracket. Obviously, as a result, there are some items that are cheaper after GST, and some that are costlier. Let us take a look:

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Cheaper post-GST:

  • Quite a few categories of food items have become cheaper in the new tax regime, and these include unpackaged foodgrain, unbranded flour (maida), wheat flour (atta), gram flour (besan), fresh vegetables and fruits, salt, food at small restaurants, ketchup, sauces, and pickles. Personal care products such as soaps, hair oil, toothpaste, shampoos, and deodorants have witnessed a price drop too.
  • Other household goods that saw lower taxes include cutlery, pressure cookers/pans, as well as TVs, refrigerators, ACs, and washing machines.
  • The travel and auto sectors too have seen price falls in pockets: airfare for economy class travel has come down, and vehicles such as bikes or scooters with engine capacity below 350 cc (and SUVs) have seen tax cuts, bringing down their showroom prices.
  • As the findings of the Local Circles survey showed, cost of entertainment has both gone up and down, depending on price of the ticket. Similarly, rooms at non-luxury hotels or establishments with tariffs under Rs 7500 attract less tax after GST.
  • Other items that became cheaper are footwear and apparel, weighing machines, and uninterrupted power systems (UPS).
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A question of fraud

GST was expected to bring down prices because this taxation system was supposed to nullify the cascading effect of multiple taxes that existed earlier. However, after passing of the GST bill, what followed was quite the opposite – prices of many products actually increased drastically. So what went wrong?

The reality is that shop owners are misusing this law to fill their own pockets. For instance, 39% of respondents to the Local Circles poll said they have been charged GST on discounted prices at least once while shopping online or in retail stores, while 28% said sellers were fooling them by charging GST on top of a discounted price, which is against the MRP rules.

Small eateries are more guilty; ironically, this was one segment that was expected to become less expensive, since it was moved to the 5% GST tax slab. Here’s what happened: assuming a food item sold for Rs 120 per plate before the GST bill, that original price had VAT etc included in it. Post GST, restaurant owners are adding the GST rate on top of the old tax (which is supposed to have been subsumed). 

This gives an impression that the price increase has been on account of GST, which is not the case; in reality, it is the proprietor who has increased the price in a wrongful manner.

RelatedGST 101: What India’s biggest tax reform means for you 

A finance ministry statement on the rollout’s first anniversary noted that “GST subsumed over a dozen local levies and transformed India into ‘one nation, one tax’ and binds the country into an economic union.” According to official estimates, the total tax base has increased significantly on account of GST implementation, with direct tax increasing 18% last year, and personal income tax collection up by 45% in the first quarter of this year. GST collections scaled a record high of Rs 1.03 lakh crore this April, dipping marginally to Rs 94,016 crore in May, but picking up again in June to Rs 95,610 crore. 

In the course of a video conference to mark the first anniversary, Finance Minister Arun Jaitley also said the government plans was to bring “most” of the items from 28% slab to lower tax brackets. “As tax collection goes up, capacity to rationalize rates will increase,” Jaitley said.

Last words

GST was launched with the goal of converting India into a single market, boost the economy, and help the GDP grow. But it is easier said than done; there are always complexities involved. 

However, it should be kept in mind that GST is a long-term strategy and its benefits will be felt only in the long run. It is also imperative for the actual benefits to be passed on to consumers, or else prices will continue to rise. If consumers are unaware of how GST works, they will continue to be cheated in the name of GST and the government will get the blame.