GST: The Good, the Bad and the Ugly

Last month we published an article on how GST will negatively impact movie ticket prices. But is GST in itself so bad? The answer honestly is no. With some caveats, it is very acceptable.

I’ll explain this as simple as I can. GST is the largest economic reform since India’s Independence and although we were one country, economic integration was far from real, until now. The biggest benefit of GST can be listed in a few points:

1. Day to day groceries and unbranded, unpacked products pay no tax, or “zero tax” under GST.

2. 80% of products come under the three GST rates of 5%, 12%, and 18% slabs.

3. “Luxury” items will be taxed at 28%.

4. Demerit goods (that add no value and are considered unnecessary or harmful) such as tobacco, pans, luxury cars will have an additional cess so as to not bring their rates down and making them more accessible.

5. There will be a single central excise when goods are moved across states rather than several excise duties paid to each state the goods have to cross.

6. This is by far the most important point. Stacking of taxes will be avoided. For example, previously at every stage that a product is sold, a tax is paid on the total price of the product. Now, a value added tax is paid only on the increase in price and not on the whole price again. Since the tax on the whole product will be transferred to consumers, once a product is sold, the tax paid on it can be reimbursed as “input credit”.

Some outlets have given the false impression that this will cause consumers to suffer more. In truth, all indirect taxes are transferable to the consumer. If anything, prevention of stacking will only reduce the tax load on the end user.

This doesn’t mean the system is perfect of course. There are some gray areas and some dark areas.

GST’s Grey Areas

GST imposes 28% tax on fireworks. My personal opinion is that this is fine. Just because a large number of people are involved in a questionable practice doesn’t make it alright. Fireworks should, in fact, be treated as luxury class products.

Petroleum and petroleum products have not come under GST yet. For several years as global oil prices have gone down steeply, Indian systems have kept increasing taxes to keep petrol and diesel prices high. Bringing this down to 28% will bring down the price of petrol and diesel immensely. For obvious reasons, central and state governments will not want this.

Also it’s worth noting that chocolate is a luxury item… *Cough cough* 28%…

As we discussed in our previous article, GST will impact the entertainment sector highly as apart from the 28% tax on movie tickets, corporations are allowed to levy another layer of “local taxes” which varies from 5% to 25% depending on each state. This goes against the very idea of GST – “one country, one tax.”

Disclaimer: This article is to quickly reflect on my thoughts on GST which rolled out earlier today, and is not meant to be a comprehensive guide as there are others who have written a lot more on the topic. Reach me at editor(at)outfocus.in

If you want a proper guide, I’d suggest this: Zoho books – GST basics