“In this world nothing can be said to be certain, except Death and Taxes” – Benjamin Franklin

Taxes don’t need introduction. Wherever we go, they follow us. There is so much talk about GST in the recent times. GST is said to be the biggest tax revolution in independent India. Markets are reacting big even for small news about GST. What’s that GST? What’s in it for businesses and governments? Why bureaucrats and economists are betting big on it? Let’s address the elephant in the room in a common man’s perspective.

Goods and Services tax, as the name says, is a tax which will be levied upon all the goods and services except alcohol. It will subsume all the indirect taxes levied currently like VAT, excise duty, service, sales and bring all under single umbrella. Why do WE care about it? We, as consumers, are the ones paying all these indirect taxes. When you buy a toothpaste (of course it has salt!) worth RS.20, all these 10 or odd taxes are already added to MRP. Any change in these taxes will change your bills from Kirana to luxury cars.

In the current tax structure, there are chances of paying tax over tax. For example, a car manufacturer pays taxes for spare parts while buying from other vendors. But in market consumers are taxed for whole car which contains spare parts whose taxes were already paid. GST will eliminate or at least reduce this tax over tax using credit system. When you are traveling from state to state, you can see lot of trucks lined up at the border. This is due to the difference in tax structure followed by different states. GST will bring a uniform tax structure across India which will boost the investments as well as economy.

Everything is good so far but what about the prices. A committee headed by Chief Economic Advisor recommends three different types of rates. One for socially valuable and important goods like medicines whose rate will be 12%. Second rate, includes 60% of all other goods and services, will be in the range of 17-18%. Last one for sin or demerit goods which will be very high. Final call on the rates will be taken by GST council headed by Finance minister.

Experts say that introduction of GST will bring down the prices of manufactured goods provided manufacturers pass on the benefits to consumers. Anyhow it’s a chain process which will take few years to bring the prices down. In contrary, services will be costlier as the rate might go up from 14.5% (including Swachh Bharat cess) to 17-18%. We might have to shell out more bucks for restaurant bills. Though tax reforms are much needed, new rates must be appropriate to fuel growth but not inflation. A separate committee must be set up as Australia did to ensure that manufacturers pass on the benefits to consumers would serve better in gaining consumers confidence in tax reforms.

 

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