GST - Change is on the Horizon

Netsaar Blog

GST - Change is on the Horizon

Netsaar Network,
28 June 2017



The flare around GST is surrounded with much negativity and confusion as most of the people do not exactly know how the GST will work and why – amid such diffident wave - is Modi government actually implementing such a drastic regime. Given how most of us have become so comfortable in the way that we are currently living that a little change is making us uncomfortable. The hammer of demonetization had been so strong that the common man seems to have no stamina to accept any further change. The public in their objection to this change have not been properly educated on the benefits of GST. And as a result they are discouraged to understand how it affects them as an individual and the country as a whole. Therefore we would like to take a shot at trying to explain the common man how GST affects us.


The NEED for a Single Tax


India is one country, but its economic setups differ from state-to-state. Because of this there are multiple taxes levied on different state borders. Resultantly goods and services cost differently for people in different parts of the country. Since different products cost differently, in the end it is the consumer who ends up paying more for the products. The Goods and Services Tax (GST) seeks to rectify that. GST wants to replace these different taxes (15 indirect taxes) and subsume all of them into one a single tax structure called GST.



The Goal of GST


GST aims to achieve different things at different levels:

  1. At a business level, GST will simplify the way taxes are approached, making it so that simple IT systems can be relied on for registrations, returns and payments. It will bring uniformity, boost compliance, improve competitiveness among Indian players.
  2. At a governmental level it wants to simplify administration of taxes, prevent leakages and inject transparency in a way the country has never experienced before.
  3. At a consumer level it aims to reduce the indirect tax burden on the common man. So next time you get your bill at the restaurant you will not be confused by what all gibberish has been charged to your bill. This is the change that GST will bring forth.



Impact on the Common Man


GST is estimated at 18%. Currently consumers pay many indirect taxes that amount to:

  1. 21% on physical goods and merchandise like a burger, a car, a coffee, a soap, corn flakes, etc and
  2. 15% on services like airplane tickets, movie tickets, insurance premium, hair cuts, parking spaces, etc.

With the implementation of GST the two this will meet in the middle at 18% and as a result products will become cheaper while services will become more expensive.



Understanding the Trickle down effect of GST


GST will impact everyone in the supply chain starting from the manufacturer > wholesales > retailed > consumers. The impact on each would be different in both degree and magnitude. To understands how GST differs from the current system, have a look at this example.




The impact of GST on different sectors is different to gauge and only time will tell how each industry copes with the change in regime. For now all you can do is improve your knowledge on the subject, hope this helped you understand what the hullabaloo is all about. For more of such insightful pieces keep it locked to