JOIN USA host of indirect taxes like excise duty, VAT, service tax, luxury tax and octroi will be substituted with one Goods and Services Tax when implemented.
If the government decides to keep the GST rate at 18% or thereabouts, both the manufacturers and consumers will benefit under the new indirect tax regime.
At present, the consumer pays approximately 25% more than the cost of production due to excise, VAT and central sales tax levies. After the GST is implemented, it will subsume all of these.
For manufacturers, who now have to pay excise, VAT and service tax levies, will switch to a single uniform tax regime.
Besides, there will be no tax on tax unlike now when a consumer has to pay several cess along with taxes. While consuming states will receive revenue from tax, producing states will get compensation.
Certain essential items like raw food articles are not taxed or are taxed at a lower rate of 6 to 8% at present. If the GST rate is decided at 18%, the essential commodities will cost more, thereby stoking inflation. But the chances are that the government will go in for a graded rate structure whereby the essential commodities are kept in the lowest grade.
Goods on which the current duty structure is lower, for example, small cars, which have an excise duty of around 8%, the impact of GST will most likely be severe and they will become more expensive.
Heavy vehicles such as SUVs and large cars that have an excise duty of 27-30% will see a drop in the prices if the GST is implemented in the expected range of 18-20%.
However, if the formula devised by Chief Economic Adviser Arvind Subramanian is applied, luxury cars will cost more after GST. He has proposed a 40% tax on luxury goods.
Services across the board will get costlier. Since the effective service tax rate now is 14.5%, the advent of GST will increase it to 18%. This will make travelling, eating out, flying, ambulance services, cultural activities, certain pilgrimages, sporting events, among others, costlier. The service sector contributes as much as 57% to the economy, so an increase in the rate will have an adverse effect.
The GST panel headed by Subramanian had recommended a three-rate structure: 12% for goods that are for the poor; a standard rate of 17-18% for most of the items and 40% for luxury items. The general consensus among economists is that the standard rate cannot be more than 20% and lower than 16%.
DH News Service