October 23, 2020

How GST will impact the wallet of the common man.

Mr. Satya Pramod, CFO – Tally Solutions
Fortunately or unfortunately, taxes are the biggest expenses the common man will ever incur in his life time and the larger portion constitutes indirect taxes. To recollect the quote of Benjamin Franklin “The two things that are certain is: ‘Death and Taxes’”
Today, we have host of indirect taxes levied at Manufacturing Stage, Sales and rendering of services. We pay excise duty for manufacturing of goods, VAT on purchases, service tax on availing the taxable services, entertainment tax on movies, luxury tax, entry tax and the list goes on. GST, labelled as one of biggest indirect taxation revolution since our independence, it becomes important to know How GST will impact the wallet of the common man? Will it shrink the wallet of common man?Or soaring the Wallet?
Lets Explore and Figure Out
GST is a tax on goods and services, with comprehensive and continuous chain of input credit set-off from Manufacturer to Distributor to Retailer till it reaches the end customer. It is essentially a tax, only on the value addition at each stage. Through the input tax credit mechanism, a supplier at each stage is permitted to set-off the GST paid on the purchase of goods and services against the GST to be paid on the supply of goods and services.
The seamless input tax credit across the value chain will eliminate the cascading effect .This is expected to result in reduction of prices of the product. You might have heard “A Penny Saved is a penny Earned”. Let us discuss the other factors that will help you in saving the extra pennies under GST.



1. Elimination of Double Taxation:
The challenge in indirect taxation in India today is with regard to double taxation. This is because a single transaction is considered as Sale and provisions of service. Consider an example of a Restaurant with AC. The restaurant bill will have Service Tax and VAT. Wondering Why VAT and Service TAX? The food and beverages are considered to be commodities and other additional services like AC Seating’s are considered as services. Hence, you pay VAT on 100 % of value of food and 40 % of the value of bill, service tax is levied at 15%. For example, a bill of Rs 1,000 will attract service tax of Rs 60 and Vat@ 14.5% of Rs 154.
Under GST, supply being a single taxable event, which is either classified as Supply of goods or services, the concept of double taxation will be eliminated. This will contribute in reduction in price.
2. Furtherance of business concept:
Today, a VAT dealer who pay excise duty and service Tax on his purchases is not eligible to claim input tax as he is not registered under those statute.
In GST, the concept of input tax credit is broadened to include any input or input services ‘used or intended to be used in the course of or for furtherance of businesses’,will be allowed to claim input tax credit on all inward supplies which are used business purposes.
This will have a bearing on price and subsequently results in reduction of price of the product.
3. Reduction of Tax rate:
Today, excise duty is levied onmanufacture and VAT on sale of goods. Let us know consider a case of purchase where these taxes are levied. The Standard rate of excise duty is at 12.5 and VAT around 14.5% is prevalent in most of the States. On an average, you pay around 27-28 % of product value as taxes. The GST rate as finalised stands at 0%,5%, 12% , 18% and 28 % and 12% and 18 % being the standard rate, you can expect the reduction in rate of taxes and subsequently, shell out from your wallet will be much lesser under GST.
4. Anti-profiteering Measure:
In order to ensure that the benefit of input tax credit by the businesses and subsequent reduction of tax rate is passed to the final consumer, by way of introduction of anti –profiteering measure clause.
This stipulates the business to pass the benefit by way of reduction in product price.
To examine this, an authority will be set up by government on recommendations of GST council.
5. Market Force:
The existing geographical trade barriers will be removed under GST and whole of India will be a One Common market. With the expansion of market beyond the State boundaries, new players will emerge and market is expected to be more competitive. This would impact the pricing strategy and any reduction in price will benefit the end consumer.