The Impact of GST on the Common Man: A Comprehensive Guide
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Listed below you'll find a detailed analysis of how Goods and Services Tax (GST) affects the daily lives of the common man in India, through various sectors and household expenses. The Indian government's move towards a unified GST regime marks a significant step in tax reform, aiming to reduce the cascading effect of taxes and create a transparent and efficient tax system.
Introduction to GST
Unified Tax Regime
India has been striving for a unified Goods and Services Tax (GST) regime for nearly two decades. Prime Minister Narendra Modi's initiative to implement this tax reform has transformed the indirect tax system. By amalgamating multiple Central and State taxes into one, GST has eliminated the cascading effect, thereby making products more competitive in both domestic and international markets. This has the potential to spur economic growth and increase government revenue.
Benefits of GST to the Common People
Better Price Transparency and Tax Relief
The inclusion of GST promises better price transparency for consumers. The tax is now levied at each stage of the supply chain, allowing taxpayers to claim credit for taxes already paid. This ensures that the final product is more cost-effective, ultimately benefiting the common man. Furthermore, GST brings a sigh of relief to the general public by addressing age-old concerns of high tax rates on various goods and services.
Impact on Specific Sectors
Household Expenses
Daily Necessities and FMCG Products
Several everyday items, including food items, packaged FMCG products like pharmaceuticals, toothpaste, soaps, junk food, and electronic items like coolers and TVs, are expected to become cheaper under the new tax regime. Food items, for instance, fall within the zero to 5% tax bracket, and packaged goods are likely to see reduced prices due to enhanced tax credits.
High-Value Items and Services
In contrast, cosmetic services, real estate, and expensive hotel stays may experience price increases. High-end hotels and restaurants may see a slight rise in their charges as the 28% GST will apply compared to the current rates.
Real Estate
Property Transaction Costs
For under-construction properties, the tax rate has increased from about 5.5% (VAT and service tax) to 12% under GST, making such purchases slightly more expensive. However, ready-to-move apartments remain unaffected.
Taxi Services
Impact on Transportation Costs
The cost of a taxi ride has seen a slight reduction in tax, as the rate has fallen from 6% to 5%. For domestic economy class air travel, the tax is now at 5% instead of 6%, while business class tax has increased from 9% to 12%, reflecting a slight cost increase.
Banking and Insurance Services
Rising Costs in Financial Services
Banking and insurance services are now considered more expensive due to the additional 3% GST on their rates.
Hotels and Air Travel
Tax Implications for Hospitality
The tax on hotels, including service tax and luxury tax, is now at 28% under GST, which may slightly increase the cost of accommodation. For air travel, domestic economy class passengers benefit from a reduction in tax, while business class passengers face an increase.
Restaurants
Impact on Restaurant Costs
The tax on restaurants is slightly reduced under GST, from 18.5% to 18%, providing a minor cost reduction for diners.
Current Challenges and Government Initiatives
Consumer Surveys and Price Increases
A recent survey conducted by the Citizen Portal, connected to the Central Government's Consumer Affairs Department, revealed that nearly 54% of the country's population reported an increase in household expenses since the implementation of GST. Over 40,000 respondents participated in the survey, with about half of them stating that their household expenses had increased by around 30% after GST.
Government Actions
In response to consumer complaints, the GST Council has extended deadlines for filing sales returns and has reduced tax rates on 30 items. The government has also demanded that petroleum be included in the new tax regime, as the prices of petrol and diesel have remained high, despite the decline in crude oil prices. The Petroleum Minister, Dharmendra Pradhan, has expressed concern about these prices and emphasized the need to bring them under GST to ensure price predictability.
Long-Term Benefits of GST
The common man stands to benefit from GST in the long term as it removes the cascading effect, making tax management simpler and more efficient. This, coupled with the reduction in taxes on essential items and services, will have a positive impact on overall consumer spending and economic growth.
Overall, while GST initially created challenges due to the new tax structure, its long-term benefits in terms of price transparency, tax relief, and economic growth make it a positive step in the right direction.