With a recent announcement on categorization of goods and services under the proposed multi-tier rate structure, an adrenaline rush can be seen in the indirect tax ecosystem, to examine and understand the impact of Goods and Services Tax (GST) rates on its customers. The tax rate is one of the factor which has a bearing on the price of goods and services.
The GST Council has approved the tax rate on majority of goods and services and the fitment has been done in different rate slabs of Nil, 5 percent, 12 percent, 18 percent and 28 percent. An extensive schedule of GST rate for goods and services has been released, which apparently indicates a progressive classification.
The exercise of cataloging the commodities, has addressed the anxiety of a common man. It will not be untrue to say, that majority of goods and services will be face less tax incidence in the GST regime. From a consumer perspective, what matters is the actual price of goods or services that he pays for it. India’s majority of the population is a common man, a person whose budget is a price elastic. A common man tend to consume less, with increase in prices and even adjust on necessities when becoming costlier.
As per the government, the objective under GST regime is to have goods and services of mass consumption, at a lower tax rate. This will also help in controlling the inflation.
Service sector, which is the largest contributor to India’s GDP today, will see a substantial reformation under GST. Presently, we have a unified rate of tax on services. The GST Council has proposed multi-tier rate structure for services also, with this a set of services for a common man will become cheaper.
In the interest of the society, healthcare and education related services have been kept at nil rate under GST.
A peep into the GST rate schedule, does reveal that by far and large this has been achieved. Also luxury goods and services have been pegged at higher rate along with an additional cess. It is worth mentioning that the concept of luxury services has been introduced for the first time in India. The rationale is absolutely economic, those who can afford luxury can afford taxes too.
Riding a cab may become cheaper as the current effective rate of service tax is 6 percent which will get reduced to 5 percent under GST. Travelling by air in economy class will also become more affordable as the GST rate is 5 percent as compared to current effective rate being 6 percent. This is aligned to the recent UDAAN YOGNA introduced by the government where it is touted that travelling by air is not a prerogative of rich – even a common man can experience it.
On the Hotel stay, where tariff is less than Rs 1000, it is status quo. Neither a tax (service tax) now nor in future (GST). Also for small restaurants whose turnover is less than Rs 50 lakh, there will be no GST. Eating out in small restaurants will be relatively affordable. However, a new categorization of luxury services has been carved out for the rich where eating in five star hotels will attract 28 percent GST. Similarly staying in a five star, is also pegged at 28 percent which currently at a lower rate.
Telecom services will be charged to 18 percent GST whereas today the phone bills have a 15 percent service tax charged on it. Optically it looks that talking on phone may become expensive but one has to realize that under GST the telecom companies will be able to get additional tax credits which will have a positive impact on the pricing. So once the math is done, it may be that the phone bills may either reduce or remain same.
The essential commodities like food grains, milk, bread, fresh fruits and vegetables, flour, besan, salt, fresh meat, fish, chicken, eggs, butter milk, curd, paneer etc. amongst other things, will be under the Nil tax rate bracket under GST. Whereas certain other items of daily consumption like coffee, tea, sugar, spices, vermicelli, rusk, sabudana, edibile oil, kerosene, coal etc. will be taxed at the lowest rate of 5 percent GST. However, instant coffee will attract 28 percent GST.
Personal care products such as soap, toothpaste and hair oil to have 18% GST as compared to a 28 percent current tax applicable to them. This would mean that clearly the prices should be reduced. Religious sentiments have also been considered, and prasadam by the religious places will have no GST on it.
Interestingly, watching a cinema has been treated as a luxury service and is taxed at 28 percent GST. Considering cinema being a luxury appears incorrect. Having said that what is crucial is that whether prices will shoot up considering that today service tax of 15 percent clubbed with state entertainment tax is levied on cinema tickets, which will be subsumed in GST. Further there are few states who have regulated the cinema ticket prices, recently Karnataka has capped the prices at Rs 200 excluding taxes.
The horizon is changing both of a ‘common man’ and ‘tax regime’. To espouse the expectations of both, the Government is fueling all necessary measures and one such step is upcoming GST. It is expected that new regime will subdue the overall prices of commodities and its accessibility.
One of the stated objective of the government is that GST will be efficient and consumer friendly. Actual incidence of tax on consumer should go down.
The writer is Partner- Indirect Tax, PwC
The views expressed are personal(Preetam Singh, Consultant-Indirect Tax, PwC also contributed to this article)