Since its introduction, Goods and Services Tax (GST) has gradually become a familiar part of daily life in India. But how exactly has GST impacted the common man’s wallet? The answer is nuanced, with both positive and negative effects. In this guide by Paisaseekho, we’ll explore the impact of GST on the everyday consumer, and what it means for the future of India’s economy.
The journey of GST began in the year 2000 when then-Prime Minister Atal Bihari Vajpayee set up an empowered committee. After numerous discussions, constitutional amendments, and related laws, GST was finally rolled out on 1st July 2017. Prime Minister Narendra Modi announced its implementation as a significant move towards creating a unified One Nation, One Tax system that would replace a patchwork of central, state, and local taxes.
What is GST?
In simple terms, GST is a single tax applied across India, replacing multiple taxes previously levied by both central and state governments. It aims to create a common market that eliminates barriers between states, thereby reducing manufacturing costs and improving efficiency.
GST is a consumption-based tax using the credit invoice method, meaning taxes are levied on value additions at each stage of the supply chain, with a smooth flow of credit.
Impact of GST on the Common Man
The effect of GST has been significant for the common man, including consumers, small traders, and service providers. Here’s a look at how it has impacted them:
1. Reduction in Cascading of Taxes
Before GST, the common man faced a cascading effect of taxes, meaning taxes were levied on top of other taxes at multiple stages. This significantly increased the price of goods and services. With GST, this cascading effect was eliminated, and a single tax was applied, reducing the overall tax burden on the end consumer. As a result, many products became more affordable.
2. Overall Reduction in Prices
With the introduction of GST, provisions were put in place to ensure that any reduction in taxes would be passed on to consumers. The anti-profiteering measure made sure that businesses did not inflate prices unnecessarily by retaining the benefit of reduced taxes. This resulted in a reduction in prices for many everyday goods and services, benefitting the common man.
3. Common National Market
GST eliminated many of the barriers that previously hindered interstate movement of goods, such as check-posts and multiple tax systems. This led to a unified national market where goods could flow freely across state borders. The reduction in time and cost of transportation also resulted in lower prices for the final consumer.
4. Benefits for Small Taxpayers
GST offered significant relief to small taxpayers. Individuals and businesses with an annual turnover of up to ₹20 lakh (in some cases ₹10 lakh) were exempt from GST registration. This exemption helped small traders and service providers reduce compliance costs and paperwork.
5. Simplified Tax Regime
Under GST, the tax structure has been simplified over time, with efforts to revise rates and manage cash flows effectively. The introduction of the e-way bill for the movement of goods made logistics simpler, ensuring that goods could be transported smoothly across states.
6. Zero-Rated Exports
Exports of goods and services are zero-rated under GST, meaning no tax is levied on exports, and exporters are eligible for a refund of taxes paid on inputs. This helped reduce costs for exporters and boosted India’s competitiveness in international markets, indirectly benefiting the economy and creating more opportunities for the common man.
7. Curbing Black Money
The unified tax system has reduced opportunities for tax evasion. GST’s structure requires transparency, and the connection between buyers and sellers means that transactions are harder to hide. This has led to reduced corruption and helped curb black money, leading to a more transparent economy that benefits everyone, including the common man.
Negative Impact of GST
While there have been many positives, GST has also presented challenges:
- Compliance Burden: Initially, many small businesses struggled to comply with the new tax regime due to the increased compliance burden. Filing returns, maintaining digital records, and understanding new rules were daunting for many.
- Higher Service Costs: Services such as banking, insurance, and telecommunications saw increased tax rates under GST, resulting in higher costs for consumers.
- Software and Filing Issues: GST implementation required significant technological infrastructure. Many taxpayers faced challenges related to software glitches and difficulties in filing returns, leading to frustration.
Benefits of GST for the Common Man
1. Uniform Prices Across States
The introduction of GST brought uniformity in tax rates across India, ensuring that products cost the same regardless of the state you purchased them in. This made pricing more predictable and fair for consumers.
2. Savings on Essential Goods
The government categorised many essential items under the 0% or 5% tax slab, ensuring minimal impact on the common man’s wallet. Approximately 60% of goods and services fall under the 12% and 18% slabs, with only a limited number of items under the 28% tax slab.
3. Benefits for Small Traders and Service Providers
GST provided relief to small traders by exempting them from taxation if their annual turnover was below ₹20 lakh. This threshold ensured that small businesses could continue operating without worrying about complex tax compliance, helping them save on operational costs.
LEARN MORE: Here’s a quick look at how to file GST returns!
4. Simplified Tax System
GST replaced multiple taxes like excise duty, VAT, service tax, etc., with a single tax. This simplification made it easier for consumers to understand how much tax they were paying on goods and services.
Conclusion
The introduction of GST has had a profound impact on the common man’s wallet. While it brought challenges, including increased compliance costs and higher service rates, the benefits have been substantial. By eliminating the cascading effect of taxes, simplifying tax compliance, and creating a unified national market, GST has helped bring down costs for consumers and make the economy more efficient.
The journey of GST is far from over, and its full impact is still being realised. However, there is no doubt that GST has paved the way for a more transparent and uniform tax system in India. At Paisaseekho, we believe in empowering individuals with the right financial knowledge to make informed decisions. Stay tuned with Paisaseekho to learn more about how changes like GST can affect your financial health.
FAQs
1. What is GST, and how does it impact the common man?
GST is a single tax that replaced multiple taxes levied by the central and state governments. It helps reduce the tax burden on goods and services, resulting in lower prices for consumers.
2. How does GST benefit small businesses?
GST exempts businesses with an annual turnover below ₹20 lakh from taxation, reducing compliance costs and making it easier for small businesses to operate.
3. Has GST led to a reduction in prices?
Yes, GST has reduced prices by eliminating the cascading effect of taxes and ensuring that the benefit of reduced tax rates is passed on to consumers.
4. What are the different GST tax slabs?
GST has multiple tax slabs: 0%, 5%, 12%, 18%, and 28%. Essential items are generally placed under the lower tax slabs, while luxury items fall under the higher slabs.
5. How does GST help curb black money?
GST’s transparent structure connects buyers and sellers, making it difficult to evade taxes. This has led to reduced corruption and curbed black money circulation.
6. What are the challenges faced by the common man due to GST?
Some challenges include higher service costs, increased compliance burden for small businesses, and initial difficulties with filing returns and using the GST portal.
7. Are all goods and services covered under GST?
Most goods and services are covered under GST, but some items like alcohol and petroleum products are still outside its scope and are taxed separately by state governments.
8. Has GST made prices uniform across states?
Yes, GST has led to uniform tax rates across states, resulting in consistent pricing for goods and services throughout the country.
9. How does GST benefit exporters?
Under GST, exports are zero-rated, meaning no tax is levied on exported goods and services. Exporters can also claim a refund for taxes paid on inputs, reducing their costs.
10. How has GST affected the movement of goods across states?
GST has simplified the movement of goods by removing barriers like check-posts and reducing paperwork, resulting in faster and cheaper transportation of goods.
