With the passage of the GST Bills in the Lok Sabha last week, India’s biggest tax reform – Goods & Services Tax (GST), is all set to see the light of day soon. Touted as a reform which would reduce business transaction costs by creating a single seamless nationwide market, GST is expected to provide the much required tonic for economic growth.
With prospects of GST increasing the GDP by 2 percent, the momentous legislation, atleast for the short term, may emerge as a mixed bag for the common man. While most services may turn out to be more expensive, it may be a jumble for goods.
While in the long-term, GST should have quite a favorable impact on most sectors in the Indian economy, the short-term impact, as in the case of most reforms, may be limited. Basis the GST implementation experience in most countries, India may witness an inflationary impact during the transition phase, which should fade away with the legislation sinking in and ope-rationalizing of measures like anti-profiteering.
Here is a look, at the expected immediate impact of GST on the common man’s pocket:
These services are likely to become more expensive
A commoner should, at least till the time the service industries do not pass on the benefit of increased credits, budget for some increased pocket pricking on some necessary services like mobile bills, renewal premium for life insurance policies, banking and investment management services.
Similarly, some basic luxuries for a common man like WIFI and DTH services, online booking of tickets may become costlier as well.
Prices of these essential services also likely to rise
Also, in the backdrop of quite a bit of current exemptions subsiding, various essential services may cost an arm and a leg under the GST regime. For example, where the current exemptions are discontinued, residential rent, health care, school fees for children, courier services, commuting by metro or rail may become expensive.
Services that may get cheaper in most states
With entertainment taxes getting subsumed in GST, prices of movie tickets and theatrical performances may become cheaper in most states.
Dining in restaurants may also become more pocket friendly in most states.
Essential goods, certain vehicle categories likely to be cheaper
In terms of goods, where an exemption/ lower rate is prescribed for essential goods, GST is expected to marginally better the house economics as a whole. Further, two-wheelers, entry-level sedan (except small cars), SUVs and luxury or premium cars may become cheaper under the GST regime, depending on the current supply chain arrangement and state of operation.
Marginal impact on white goods
Again depending on the current supply chain structure and related indirect taxes, a commoner could expect a 2% to 3% plus or minus impact on white goods like televisions, washing machines, stoves, etc.
Aerated drinks , sin goods prices likely to jump
The Government aligned with its negative outlook to deleterious goods, proposes a higher tax on ‘sin goods’ which essentially includes aerated drinks, cigarettes and tobacco products. Where a higher rate of around 40% is proposed on aerated drinks, the same may witness an increase in their prices.
Positive impact on cost of most supplies in long term expected
While the above anticipations are mostly basis the information released/ statements of government officials available in the public domain, we would need to await the final fitment structure released by the Government on categorization and related rates for various goods or services. Nonetheless, with enabling of anti-profiteering and other corrective measures, GST should result in a decreased cost for most supplies to the end consumer in the long run.