In a stern move, the government has told taxpayers to file revised Form Tran-1 by December 27, 2017, if they have claimed transitional credit erroneously. Failing to do so could lead to enforcement action, tells the government. The move comes in the wake of some taxpayers availing extraordinarily high transitional credit of Central GST (CGST) which not only differs from the trend of input tax credit of the industry but also not maintained by the concerned taxpayer in the past. Some of the high transitional credits may have been backed with a bonafide explanation or could be a bonafide mistake. But according to the observers, the high transitional credits claimed in many cases are devoid of any bonafide explanation. The government has already started to identify such units and on being caught on the wrong foot could lead to audit and enforcement action.
A Brief on GST-related Developments
Goods and Services Tax is country’s most transformative taxation reform after independence. With the Rajya Sabha all confident about the GST Bill, it has affected the common man in multiple ways. With the Bill unifying many State and Central Taxes, it is expected to positively impact the country’s GDP by bringing about an increase of about 2%. With many articles of daily use getting cheaper and services getting more expensive, GST Impact on common man is be a mixed bag.
The idea of GST was first suggested in the Budget of 2007-08 by the then Union Finance Minister. However, after constant pondering and redesigning, the Bill came into action on the 1st of July, 2017. In the perspective of many, GST functions as the liberation of our economic imagination, bringing about economic freedom in India. Not only it will make India the biggest democratic and free market but would also change the way India pays its taxes.
The government and many leading newspapers of the country have made an effort to educate the general public about the pros and cons of this reform by bringing out essays on impact of gst on common man and telling benefits of gst to common man in hindi. This has surely ensured a better reach out to a majority of people and spread of knowledge on a wider scale.
GST Impact on Common Man in India
The impact of GST on a common man in India is manifold. Not only has this Bill brought down the prices of necessity goods but would also help Indian citizens attain better living standards, eventually. Know, in detail, about the impact of GST on the common man in India!
- Cheap Restaurant Bills – In the previously existent scenario, if your restaurant bill depicted an expense of ₹1,000 then, the tax levied on you was about 18.5% which included both Service Tax and Value Added Tax. This brings the bill close to ₹ 1185, without the inclusion of Service Charge. With this reform, the rates have been fixed at a constant 18%. At this rate, your restaurant bill would be close to ₹ 1,180 for the exact same order.
- An escalation in Phone Bills – As the states are in charge of the determination of Service Tax, your phone bills would get more expensive now. In the previously existent, you paid a tax of 15% on a bill worth ₹ 1,000 which rounds off to ₹ 1,150. But after this reform, the tax levied on you is 18%, which makes the bill worth ₹ 1,180 for the same amount of services used. With this reform, the telecom rates have risen which means expensive phone calls, internet usage and higher call rates.
- Readymade garments get cheaper – Shopping at fashion brands and buying readymade clothes is cheaper now, thanks to GST. With this reform, the previously existent rate of about 12.5% inclusive of Excise Duty and Value Added Tax has been subsumed. In the previously existent scenario, a readymade garment that cost ₹ 1,000 attracted a tax of about ₹ 125. But under this bill, the same readymade garment costs ₹ 1,120 with a levy of 12%.
- Owning a four-wheeler becomes more affordable – With this reform, buying a car has become easier, majorly due to the price similarity in the manufacturing and non-manufacturing states. Buying a car is a pocket-friendly option now. Earlier, for instance, on a car worth ₹ 5 Lakhs, the consumer used to pay an Excise Duty of 12.5% along with the Value Added Tax which brought the price of the car close to ₹ 6.25 Lakhs. But with the new regime, the tax price has slashed down to as much as ₹ 35,000 which is a rate of 18% making the price of the same car come down to ₹ 5.9 Lakhs, inclusive of taxes. The new and competitive prices of cars are bound to attract more consumers in the near future.
- Phones get pricey – Previously, purchasing an imported mobile phone called for a payment of up to 12.8% of taxes. With the GST slab of 18% incorporating cell phones too, the price of a phone which was ₹ 11,280 (inclusive of tax worth ₹ 1,280) earlier, costs about ₹ 11,800 now.
- Prices of LED televisions get slashed – As a part of the Make in India campaign, buying LED televisions and watching your favorite daily soaps are cheaper now. Earlier, a LED TV would call for a levy of about 24.5% making its price worth ₹ 20,000 accelerate to a hefty ₹ 24,900. After the new regime, the price of the same TV attracts a levy of 18% bringing down the price to ₹ 23,600 which makes a difference worth ₹ 1,300.
- Buying jewelry articles get extravagant – According to experts, the jewelry articles attract a levy of about 6% which originally was about 2%, making it more difficult for the consumers to buy jewelry and impacting the market altogether.
- The impact on online shopping – The e-commerce industry is included in a tax net and under the new regime pays the tax that is deducted at the source for every purchase from the sellers. This has made buying bags, electronics, shoes and many more things more expensive through the online mode. GST has eventually shrunk the profit margins and revision in tax compliance leading to an eventual slash in discounts and freebies for the customers. However, the consumer might benefit from the lower logistical costs and faster delivery in the days to come.
Benefits of GST to consumers
The impact of GST on the consumers in India has been a mixed bag as the prices of goods and services have seen both depreciation as well as escalation this year. However, one can ponder over how gst will benefit consumers in the near future after considering the following points.
- Ease of Doing Business – The new reform has made way for a simpler tax regime with fewer exemptions making it easier to do business in the country. The reduction in the mishmash of taxes that were levied previously has brought about uniformity and simplification in the process of taxation. The businessmen experience a reduction in the compliance costs which would otherwise have come from record keeping of various taxes and investment of resources and manpower in the maintenance of those records. The procedures have become more simplified and completely automated for processes such as registration, returns, refunds, tax payments and the likes. There is lesser public interface between the taxpayer and the administration as the interaction takes place through the common GSTN portal. The environment of the compliance has improved with online return filing and online verification of input credits.
- Benefit to Consumers – As for the consumers, the final price of the goods has slashed down because of the unrestricted flow of input tax credit amongst manufacturers, retailers and service suppliers. A large number of small retailers are either exempted from taxation or are levied with very low rates of tax. Hence, purchasing from these retailers has become cheaper for the consumers. Also, the average burden of tax on companies has come down which, in turn, has reduced the prices of goods and services leading to an increased consumption and a better market.
Impact of GST towards individual taxpayer
Following would be the impact of GST towards individual taxpayers in India.
- Simpler tax structure – The merger of all the taxes levied on goods and services has led to a simpler taxation structure. GST bears the character of being extremely simple and transparent in function leading to lesser accounting complexities. This regime has made the manufacturing sector extremely competitive while saving money and time.
- Uniform tax regime – GST has brought uniformity in the tax regime as it will float only one or two tax rates across the complete supply chain. This is simpler and more uniform against th previously existent structure. Also, it provides a fair chance to all stakeholders while drawing attention to efficiency and not vantage points.
- Greater tax revenues – One can expect greater tax revenues with this Bill as a simpler taxation regime would lead to greater and more efficient compliance, eventually leading to a larger number of taxpayers. This way, the government will be able to earn greater revenues as the cascading effect of the taxes would not affect anymore.
- Competitive pricing – On an average, the total tax levied on any commodity manufacture in India ranges between 27% to 30%. This takes up the major chunk of the pricing of the goods and services leading to an incredible rise. With GST, these prices are have come down as the consumer pays a single tax in place of layers of taxes. This has risen the consumption which will be beneficial for the companies and would eventually benefit the market.
- Push to exports – As a result of the decline in production costs in Indian market, Indian goods will become more competitive in the international market. This will boost the exports from the country and would give us an edge over the global manufacturers that operate different cost structures. According to a study by the National Council of Applied Economic Research, the GDP of India can be expected to rise anywhere between 0.95 to 1.7% if GST keeps ruling for the next 3 to 5 years.
Why do we need GST?
As per the previously existent taxation system, different laws apply to different states making it cumbersome for those whose business functions across the state borders. Most of the businesses comply with at least 3 different taxes, namely, Value Added Tax, Excise and Service Tax. With GST, there would be uniformity in the taxation across the country. It would allow complete tax credit from the attainment of capital goods and inputs which can later be redeemed against GST output liability. The Bill aims at simplifying the tax hurdles for the whole economy while providing an equal foothold to both big as well as small enterprises.
Who will have to pay GST?
This tax is levied on all manufacturers, sellers and service providers such as telecom providers, consultants and the likes. However, as it is an Indirect tax, the burden is eventually be borne by the consumers. Hence, the consumers are experiencing a considerable dip in the prices of small and medium segment cars, DTH and FMCG products to name a few. Similarly, luxury cars, textiles, tobacco and many more products have gotten costlier.
GST and its benefits
The Bill will bring about the following benefits for the common man.
- Transparency in product pricing – As per the previously existent taxation system, the pricing of every product included a variety of hidden taxes bringing the tax range to 27% to 32%. With the Bill in action, this percentage has dropped considerably making the pricing more transparent.
- Uniformity in tax regime – GST has brought uniformity in the tax regime making it less confusing and curbing the previously existent flaws in the regime.
- Uniformity in the computation of taxes – As this bill is a cumulation of multiple taxes, the computation of Excise, VAT, Service Tax and CST will not be required making the process of computation easier and uniform.
- Availability of more disposable income – As the consumers are paying fewer taxes now, this reform would leave them with more disposable income.
- No double taxation – The problem of double taxation has been eliminated with Goods and Services Tax as the consumers are being charged only once for the purchase of any good or service by the government.
- Rise in GDP – As GST will lead to more tax accumulation by the state and center, the GDP of the country is expected to rise by 2% over the next 3 to 5 years. This will eventually lead to developed public infrastructure and better market conditions in the longer run.
- Discouragement of practices involving Black Money – The rollout of this Bill will curb the practices involving Black Money possibly leading to more income for the government exchequer. This would eventually lead to a better quality of life and more expenditure on public infrastructure.
Conclusion on GST Roll Out
GST is expected to bring a significant macroeconomic impact in terms of growth, prices and budget balance. With a sprouting service sector, India is already set on the path of high economic growth. Considering the current scenario, focus on consumption based tax rather than on income based tax can provide a substantial boost to the economy and the source of revenue. Apart from a temporary price impact on the Indian economy, one can expect a larger impact on the GST administrative compliance cost which would lead to a rise in tax revenue from the “parallel” or “black” economy.