2/6/2018 India’s GST: a mere drift in consumers’ mind or impact on pockets?

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FOR CRYPTO STARTUPS, THE UNION BUDGET 2018 HAS SOME REALLY BAD NEWS

OPINION (/CATEGORY/YS-EXPERT-OPINION)

India’s GST: a mere drift in consumers’ mind

or impact on pockets?
Anita Rastogi (/author/anita-rastogi)     posted on 25th May 2017

In order to understand the new GST regime's impact, we must understand where a consumer
is placed in the GST chain. 

Ever imagined an industry without a consumer? All units produced and warehoused but not
sold is something which no trade and industry would ever want. It is not farfetched to say that
more than machines and employees a business needs consumers. This article intends to
analyse the impact of upcoming Goods and Services Tax (GST) on consumers. But before we
proceed further let’s understand where a consumer is placed in the GST chain and how it will
get impacted.

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A consumer might not be required to do anything under GST, and is also the last person in the
value chain involving supply of goods and services, but all this tax transformation is
undertaken for his betterment only.

There is an interrelationship between a consumer, business and indirect taxes. One of the
leading revenue generators to the government is indirect taxes, a tax that is collected and
deposited by a business, but eventually passed on to the person who bears the ultimate
economic burden of the tax (i.e., the consumer). The price paid by a consumer for goods and
services have following three unnoticed components (other than market forces that are
governed by various external factors):-

Element in
S.No. Controlled by
price

Largely depends on business decisions, what to

Cost of procure, from where and of which quality. Indirect
1 inputs/raw taxes play a limited role here, as the inputs or raw
material material will also have an indirect tax levied on
them

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2 Pro t margin Solely a business decision

Solely governed by applicable scheme of taxes

3 Taxes
on such products, services or industry

A change in any of the above components will certainly birth a variation in price of goods and
services. Aside the pro t margin and quality-related decisions, from a tax perspective
implementation of GST (amalgamation of existing indirect taxes and cesses) will have a critical
role in price determination.

Now, when we have captured the signi cance of indirect taxes in pricing of commodities, we
progress to list down the impact of GST on consumers. India’s larger consumer base is a price
elastic consumer, and any change in the price leads to demand and consumption volatility.
Few of the key impacts of GST on consumers could be as follows:-

Impact of GST on consumers

1. Reduction in price of goods and services, how?

The present scheme of indirect tax results in cascading e ect of taxes, and thus in certain
scenarios the taxes paid on procurements are not available for setting o the output tax
liability. This leads to formation of a tax cost and rise in price of the commodities. The GST
implementation is expected to curb this cascading e ect, and provide a seamless credit to
the supplier of goods and or services. In turn, there will only be a tax on value addition and no
business costs in terms of taxes paid on procurement of inputs, input services, or raw material.

Thus the net amount of indirect taxes implanted in the value chain will be less, thus price of
goods and services will be expected to be relatively less in ordinary scenario. Due to
incorporation of anti-pro teering provisions, businesses will be bound to pass the bene ts (on
account of GST implementation) to the consumers. The nal announcement on tment of
commodities into proposed multi-tier rate structure along with tax rate for services will
happen next month (May), post which one will be able to sense the real reduction or in ation
in prices.

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2/6/2018 India’s GST: a mere drift in consumers’ mind or impact on pockets?

/) 2. Uniform prices throughout the country

Today, we have Value Added Tax (VAT), which is levied on sale of goods and administered at
state level. Under the VAT laws, there are Schedules which outlines the tax rate on
commodities with their brief description. This description and tment may vary from state to
state which leads to price variation. Besides this, there are certain local taxes and duties (such
as entry tax) which are levied only in identi ed states. With GST coming in, all these
complexities will be ironed out, and there will be uniform prices across nation.
Implementation of GST is most commonly echoed as ‘one nation, one tax, one market’.

3. Transparency in tax structure

As a matter of consumer right, he is entitled to be of information including taxes and duties

(/search)
relating to products and services that he consumes. The kind of e orts that government is
taking to educate the masses, it will create awareness amongst the consumer regarding the
proposed GST structure and its transparency measures. A major change would be elimination
of MRP-based taxation, where consumer was never aware of taxes inbuilt in the price of
commodities. Also there will be an end to dual taxation (levy of service tax and VAT at the
same time), which is prevailing today in software and restaurant sector.

4. Certain goods to be costlier in the name of cess, and service will be taxed at a higher
rate

GST will have minimum exemptions. The existing bene ts will be grandfathered under GST
only where necessary and it is expected that few of the exemptions and tax holidays will be
(https://getpocket.com/save?
put in their sunset mode. Removal of such bene ts, may burn a hole in the pocket of
url=https://yourstory.com/2017/05/indias-
consumers as they have to bear an economic burden of tax cost (GST), which businesses will
gst-
pass through to them. Further, the government has introduced a levy of cess on certain goods
mere-
(tobacco products, coal, aerated water, motor cars), to be commonly be known as
drift-
‘compensation
consumers- cess’. This charge of additional ‘cess’ will make these goods costlier than the
existing
mind- prices. Also the services are expected to be costlier by three percent, and the rate
under GST may increase to 18 percent.
impact-
pockets/?
utm_source=getpocket&utm_medium=share)
5. Better accessibility of goods and services

The implementation of GST will provide numerous business opportunities to decide on

warehousing and logistics. It is expected that there will be a better accessibility of goods and
services under GST, as the consumer need not travel across states for making a purchase to
save tax. Further, the online shopping companies will plan their operations to reduce the lead
time, while managing the warehousing facilities, which today are contingent on lling
complexities of present tax structure.

Conclusion The Year Ahead: Trends

Shaping Digital India
As a consumer, one is eagerly waiting for announcement of tax rates and proposed list of
exemptions. Using which, he will apply a gross mathematics and decide on his major
#IndiaTrends2018
purchases during this transition period. Say, motor cars are expected to be expensive in GST, a
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2/6/2018 India’s GST: a mere drift in consumers’ mind or impact on pockets?

/) consumer will look forward to buying the same before Tell

GSTus kicks
whatin.you
Indirect
think taxes
will bewill
thefollow
key digital
the consumer, no matter in what name and shape, and he (consumer) will have an inevitable
trends that Indian startups should watch
encounter with them as an essential element in price of goods and services.
out for inWhat
2018.an
informed consumer can do is be aware of applicable taxes on his purchase.

Take
Preetam Singh, Consultant – Indirect Tax, PwC also contributed thearticle.
to this survey now!

Maybe
In the run-up to one of the biggest tax reforms in the country, the market Later
is abuzz with new
rules and guidelines about the Goods and Services Tax (GST). How will GST really impact your
business? How will your nancial reporting change? Find out the answers to all this and more,
directly from industry and tax experts who will share their expertise on YourStory’s new series
‘IndiaonGST’.

(Disclaimer: The views and opinions expressed in this article are those of the author and do
not necessarily re ect the views of YourStory.)

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Author

Anita Rastogi
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2/6/2018 India’s GST: a mere drift in consumers’ mind or impact on pockets?

/) (/author/anita-rastogi)

Partner - Indirect Tax, PwC India

(/author/anita-rastogi)

Related Topics
INDIA (/TAG/INDIA) VALUE CHAIN (/TAG/VALUE-CHAIN) GST (/TAG/GST)

TAXATION IN INDIA (/TAG/TAXATION-IN-INDIA) INDIRECT TAXES (/TAG/INDIRECT-TAXES)

SAVE TAX (/TAG/SAVE-TAX) TAXATION IN THE UNITED STATES (/TAG/TAXATION-IN-THE-UNITED-STATES)

SALES TAXES (/TAG/SALES-TAXES) TAXATION OF DIGITAL GOODS (/TAG/TAXATION-OF-DIGITAL-GOODS)

TAX RATES (/TAG/TAX-RATES) GST IMPACT (/TAG/GST-IMPACT)

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