Impact of GST on a common man - Motilal Oswal
Impact of GST on a common man - Motilal Oswal

Impact of GST on a common man

The GST was launched on July 01st 2017 and it just completed one year of implementation around 3 months back. One can talk about lower revenues in GST or the procedural delays but the fact remains that it has delivered without too many hiccups and has shown growth in revenues without adding to inflation. To that extent it has surely been a success. The real benefits in terms of growth will be only visible in the next few years. But let us look at one important constituency that is the common. What does the GST meant to the common man? Does he or she really benefit from the GST? Have their lives become simpler? What happens to household budgets? Let us look at the impact of GST on common man. We study various aspects on how GST will affect common man.
 
It has had an impact on inflation but that is actually quite marginal..
 
For any householder in a middle class family, the primary concern is inflation. Inflation is the rate at which the cost of living becomes more expensive and therefore an important component of your planning. GST has been inflationary in most economies where it has been introduced. Australia and Malaysia are classic examples. The smart move that the government has done in this case is to keep food products in the range of 0-5% GST while common use toiletries have been kept around the average rate of 18%. This ensures the household budget is not negatively impacted. Household budgets going for a toss has political and social implications. The current government would be averse to such experiments with less than 8 months to go for the next general elections and some critical state elections in Rajasthan, Madhya Pradesh, Chhattisgarh and Telangana coming up.
 
Who will be the winners and the losers in the GST game?
 
There are going to be some obvious gainers and losers. To begin with, GST for most of the popular food items will be in the range of 0-5%. That will continue to keep food inflation low, as is visible in the last few months. Food budgets are not going to go up substantially; in fact it is more likely that it may actually go down. Life style bills are likely to go up post GST. Air travel or train travel; travelling by premium classes will mean you pay higher rate of GST compared to economy classes. For most of us addicted to smart phones and broadband connections, the mobile bill and monthly DTH bills will get costlier due to 18% GST.
 
You can bargain for the benefits of input tax credit
 
Let me explain this point. In the past, when you pay service tax, you would not get the benefit of service tax paid on inputs. Hence it became an escalating cost. Now, the supplier of a service gets set off credit so even through the GST is higher at 18%, the service provider will provide you a payback in the form of lower pricing or higher usage. Either ways you stand to gain. For example, your mobile company or DTH provider will charge you 18% GST instead of 15% service tax but will also pass back the benefits of input tax credits. From your household budget point of view, your service provider will always be happy to provide you that extra bit if you appear to be more knowledgeable. There is an anti-profiteering clause in GST inserted by the GST Council. It clearly states that any cut in tax rate by the GST Council will have to be fully passed on to the end customer. Failure to pass on will invite penal action for the service provider. So don’t get psyched by the higher GST rates. You may actually benefit if you talk to your service provider and hold the bargaining chip.
 
Investments and insurance could become more expensive and so will your plan
 
Household budgets are not just about expenses but also savings. Firstly, service costs in terms of insurance, equity trading transactions, MF costs will go up post-GST. Secondly, tweak your budget to make it more sensible in the post-GST scenario. Overall, the GST appears to have been positive for the end users and the retail consumers. Lower food prices means a sharp positive impact on household budgets. Other factors can still be managed.
 
 

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