The Goods and Services Tax for Dummies

What is the Goods and Services Tax?

The Goods and Services Tax (GST) is a far-reaching reform of India's indirect tax regime which seeks to unify the country into one market. It is considered to be one of the most important tax reforms in the country since Independence. GST is a single tax on goods and services which will begin at the manufacturing level and extends all the way to the consumer, replacing a number of existing state and central levies. 

Under the GST, Central Excise Duty, Service Tax, Countervailing Duty, Special Countervailing Duty, Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax, Advertisement taxes and Taxes applicable on lotteries will be bound together. For example, while you pay for your meal in the restaurant, there are typically four-five different types of taxes to be paid. With the GST being put to place, the bill will now have two taxes: central goods and services tax (CGST) and state goods and services tax (SGST) wherein the CGST revenue will go to the centre, while the SGST to the states.

There are effectively six slabs for GST- Exempt goods and services, 5%, 12%, 18%, 28% and 28% + cess. 

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What is the Goods and Services Tax not?

The GST has nothing to do with direct taxes, such as income tax which we pay on salaries. It only has to do with indirect taxes which we pay on the purchase of goods and services, such as the tax component of the price of a pack of biscuits, or the service tax component of a restaurant bill.

When will GST be implemented?

The Goods and Service tax will come into effect from July 1, 2017.

How will the GST impact our pockets?

The products have been categorised into those that get cheaper, costlier and 'no tax' items.

• No tax items mainly consist of items which are of everyday use such as milk, cereals, meat and curd. Furthermore, religious travels such as for Haj pilgrimage and services for metro travel, education and healthcare will not be taxed.
• Expected to get cheaper:

1. Travelling via two-wheelers, large cars and SUV’s.
2. Branded goods as they will be taxed at 18% under the GST compared to current rate of 23-24%
3. Tax on hotels will now be only 18% from currently existing 22%. While hotels with tariff below  Rs 1,000 are exempted from GST. High-end hotels with Rs. 5000 plus tariff will be charged 28% GST.
4. Movie tickets will also become cheaper with a uniform tax rate of 18%.  In most states, tax on movies comes between 22% to 25%.
5. Products of daily use such as soaps, hair oil and toothpaste will become cheaper as well.
6. Economy class passengers can rejoice as airfares are expected to shrink with a tax of 5 percent. Sadly though, Business class fares will attract 12% rise in fares.
7. Telecom services are most likely to get cheaper.

• Expected to get expensive:

1. Luxury goods in the form of aerated drinks and tobacco will be taxed at 28% plus varying amounts of cess. Alcohol is out of the ambit of GST.
2. Charges of services such as school fees, courier services, mobile charges, banking charges, Wi-fi, DTH services, will get costlier.
3. Small cars will see a slight rise in prices as they fall into a higher tax bracket of 28%.
4. Currently taxed between 3 to 4%, essentials such as tea, coffee and masalas will be taxed at 5% with the coming of GST.  Furthermore, personal care products like shampoos and deodorants will become more expensive.
5. Metals, mining and cement will also become costlier under the GST.
6. Services such as ATM transactions (after free transactions) and non-maintenance of minimum monthly average balance attract charges, which will now be taxed at 18% instead of the current rate of 15% tax.

How does the GST benefit you?

1. GST aims at reducing around 17 taxes currently being levied.
2. A fragmented market would be transformed into a common one leading to the unimpeded flow of goods and services.
3. GST applicability would result in the elimination of double charging in the system.
4. With the implementation of GST, the burden of taxation will be split equitably between manufacturers and services.
5. GST will be levied only at consumption level and not at the various levels from manufacturing to retail outlets. Currently, tax is levied at every level of value addition leading to a high overall tax incidence.
6. GST benefits people as it reduces prices of products which also benefits companies as consumption will increase.
7. It is estimated that the GDP will grow 1-2% due to GST as demand increases, production of products will also grow.

What problems did the States have with GST?

States were apprehensive about the loss of revenue they would face if the state-level taxes are done away with. At the state-level, taxes such as value added tax, entertainment tax, sales tax, octroi and entry tax, purchase tax, luxury tax, and taxes on lottery and gambling will be combined under the GST. The Centre will be reimbursing the states for any loss of revenue on account of GST for the first five years.

What remains to be seen?

1. If the systems that enable GST are ready to go live.
2. Whether the providers of goods and services pass the benefits of GST down to the consumer or use it to hike their margins