In less than a year, the common man’s struggle with VAT or Excise Duty or Service tax will come to an end. Instead, he will encounter a new three letter abbreviation: GST or the Goods and Services Tax.
Understanding GST
So moving on to the crux of the issue, what is GST? Put simply, it integrates taxes on goods and services. But the more important question is: what does GST mean for the consumer?
To answer this, we need to understand how GST impacts businesses providing services and goods to consumers.
The proposed GST model has two components or rates:
Central GST representing share of taxes to Central Government
State GST representing share of taxes to State Government
In the existing regime, a multitude of taxes have been enacted by the Central and State Government which operate parallel to each other on the same transaction. This causes great confusion and uncertainty. This lack of certainty bears heavily on both businesses and the Government in terms of extended court proceedings and insufficient tax recoveries accruing to the government. A classic example of this would be the charging service tax and VAT on hotel / restaurant bills, and on construction services by builders.
Impact
Business or organisation level
Service providers and traders of goods alike would be able to avail credit of taxes paid on goods and services used by them for commercial purposes thereby lowering the taxes payable by such businesses.
End-consumer level
Tax rates under the GST regime would be higher than the existing rates, resulting in a higher price being charged to customers solely due to higher taxes. The recent increase in service tax rate to 14 per cent (from 1 June 2015 onwards) is also a step towards the GST regime of higher tax rates.
Though it can be argued that the business-level impact ie lower taxes on businesses would translate into lower prices to consumers, it is the industry’s call whether to pass on the benefit to consumers. Hence, the question of whether GST would increase or decrease the price level is highly debatable.
Is GST our saviour?
The very premise of GST brings in more stability, clarity and a common tax base for all types of transactions. The common man would not be required to cope with the existing complex structure of multiple taxes anymore. Instead, a single GST would prevail. Practically, the most visible problem of levying VAT, service taxes, service charge in hotel and restaurant bills; would be absolved by a single GST rate on the total bill value.
This would achieve twin objectives, assuring customers that they are not being cheated and also eliminate the ignominious racket of pocketing excess taxes collected by fraudulent hotels/ restaurants from their customers.
Though GST would encourage businessmen to charge tax so that the buyer can claim credit on inputs, the problem of deviant businessmen evading taxes through a variety of ploys and tricks will still need to be addressed.
In conclusion, it is now up to the businesses and tax administrators to decide whether they will pass on the benefits of GST to the common man or not.s
(Views expressed are personal)