July 1, 2017 is set to become a red-letter day in the history of India and the Indian economy. This is due to the fact that the taxation system of India, established post-independence, is set to see a radical change. Currently there is a plethora of indirect taxes which the GST aims to subsume with its implementation, thus imposing a single, comprehensive tax. This will also do away with the cascading effect of taxes on goods and services.
What is GST Bill in India
On 12 April 2017, the Central Government enacted four GST Bills:
- Central GST (CGST)
- Integrated GST (IGST)
- Union Territory GST (UTGST)
- Bill to Compensate States
These bills aim to change the current complex structure of multiple indirect taxes and replace it with a comprehensive Goods and Services Tax (GST). This will be implemented on July 1, 2017. The GST is expected to usher in a transparent and corruption free tax regime.
Key Benefits of GST (Anticipated)
- Wider tax base, necessary for lowering the tax rates
- Elimination of multiplicity of taxes and their cascading effects
- Rationalisation of tax structure and simplification of compliance procedures
- Reduction in duplication and compliance costs due to harmonisation of Centre and State tax administrations
- Reduction of errors and increased efficiency with automation of compliance procedures
- India will become a single market with a reduction in cost and time on movement of goods.
- While the GST will make way for more tax revenues for government, it will lower the tax burden on industries.
- There will be a marked reduction in paperwork and time involved in paying taxes.
- Over time, GST is expected to add between 2 to 2.5% to the GDP.
- Increase exports between 10 and 14%.
Impact of the GST on Services
To help understand the GST, we need to explore GST impact on common man. (Rates of select services only have been explored as an example)
- Exempted Services: Education, healthcare, residential accommodation, hotels/ lodges with tariff below Rs. 1000 are exempt from the GST.
- 5% GST: Goods transport, rail tickets (other than sleeper class), economy class air tickets and cab aggregators (like Uber and Ola) will come under the 5% tax slab in GST.
- 12 – 18% GST: Work contracts, business class air travel, telecom services, financial services, restaurant services, and hotel/ Lodges with tariff between Rs. 1000 and 5000 will incur a 12 to 18% GST.
- 28% GST: Get ready to pay GST of 28% for cinema tickets (above Rs. 100 while for tickets below Rs. 100, it will be reduced to 18%), betting, gambling and hotels/ Lodges with tariff above Rs. 5000.
How GST Will Affect Your Everyday Life
The Ministry of Finance has been keeping the masses informed about key issues pertaining to the GST. A tweet informed that daily consumer goods will be exempted from taxes under Goods and Service Tax, making them cheaper by 4 to 5%. “Daily Consumer goods being used by the common man among others to become cheaper after GST,” read a tweet.
“On roll-out of GST wef July 1, 2017, there will be zero GST on food grains, flours, cereals, pulses, atta, maida & besan among others,” read another tweet by the Ministry, informing the people about daily needs and GST.
Along with these commodities, fresh vegetables and fruits, fresh milk, common salt, puffed rice, animal feed, organic manure and fire wood will also be put under the zero% tax slab. However, the same items, if branded with registered trademark will be taxed at 5% under GST.
Raw silk, wool or jute and hand operated agricultural equipments will also be taxed at zero%, thus ‘making these items cheaper for the common man.’
Changes in The Tax Levels by The GST Council
- Cashew nuts: Reduced from 12% to 5%
- Ready to Eat: Pickles, chutney, sauces, instant food mixes: Reduced to 12% from 18%
- Kajal: Slashed from 28% to 18%
- Insulin: Reduced to 5% from 12%
- School bags: Reduced from 28% to 18%
- Children’s colouring and drawing books: NIL (was 12%)
- Cutlery: Reduced from 18% to 12%
- Select tractor components: Will now attract 18% compared to 28% under previous arrangement
- Computer printers: Reduced from 28% to 18%
- Ayurveda: Increased to 12% from present 8 to 9%
- Entertainment: Theme park visits and tickets to sporting events like IPL to be charged 28%
The GST Council is meeting at regular intervals to facilitate smooth implementation of the GST. Ten working groups have been set up to help key sectors and industries like banking, telecom, IT/ITES, financial, textile, oil and gas, gems and jewelry, transport and logistics, and small and medium enterprises work through the anticipated hiccups and transition to the GST.