Good and service tax: is it good or bad?

Goods and service tax aka GST has been doing rounds in newspapers and news channels a lot for a few months. And with less than 50 days from its formal implementation on 1st July 2017, it is again garnering lots of speculations and interests.

So what is this GST?

GST is a single integrated tax instead of the current cascading tax structure that are charged on the manufactured and sold goods.

Is GST good for us or bad?

Let us understand it using an example of you trying to buy a simple shirt:-

Under the normal tax structure:

  • At the manufacturing end:
  • The cloth costs the manufacturer Rs 100
  • He pays 10% indirect tax: Rs 10
  • The manufacturing cost: Rs 50
  • The price of the shirt fixed by it: Rs 160
  • Now a 10% tax is again levied on it, the price of the shirt comes up to Rs 176

 

  • At the wholesaler end:
  • The Shirt arrives at the wholesaler at the price of Rs 176
  • Assume he adds his profit as Rs 20 and offers the shirt at Rs 196.
  • He will be levied a tax of 10% on it, so the price comes up to Rs 215.6

 

  • At the retailer:
  • The Retailer receives the product at Rs 215.6
  • He adds Rs 20 as his profit and marks the shirt at Rs 235.6
  • He will be levied the tax of Rs 23.5 i.e. 10%, making the cost of the product as Rs 259, let us round it off to Rs 260.
  • The price of the products when it reaches you

Along with the all cascading taxes at each level, the shirt is priced at Rs 260 for you to buy.

Under the GST:

  • At the manufacturing end:
  • The cloth costs the manufacturer Rs 100
  • He pays 10% indirect tax: Rs 10
  • The manufacturing cost: Rs 50
  • The price of the shirt fixed by it: Rs 160
  • Now with 10% rate, the tax comes up to Rs 16. But since he has already paid Rs 10 as a tax in the beginning, he only has to pay Rs 16-10= Rs 6 as GST.
  • At the wholesaler end:
  • The Shirt arrives at the wholesaler at the price of Rs 160
  • Assume he adds his profit as Rs 20 and offers the shirt at Rs 180
  • He will be levied a tax of 10% on it but as he has already paid Rs 16 as the tax, he only has to pay Rs 18-Rs 16= Rs 2 as GST
  • At the retailer:
  • The Retailer receives the product at Rs 180
  • He adds Rs 20 as his profit and marks the shirt at Rs 200
  • He will be levied the tax of Rs 20 i.e. 10%, but as he has already paid the tax of Rs 18, he has to pay Rs 20-Rs 18= Rs 2 as GST.
  • The product price when it reaches you
  • The total taxes levied at different levels: 10+2+2=14
  • The selling price of the shirt is fixed at Rs 160+14= Rs 174.

So from the above example, the difference between the cost of your simple shirt comes to Rs 260-174= Rs 86. It seems like a small amount but assume the scenario where you are buying stuff of thousands and lakhs of rupees, GST is surely going to temper down their prices.

But it also needs to be understood that GST will help lower down the prices of only those commodities on which both VAT and Excise duties are levied, such as some of the four wheelers, two wheelers, electronics goods, cement and properties.

But the commodities on which only one tax is levied, its price is going to be higher than the current rate. The commodities such as train tickets, clothing, branded jewelry, hotels, air fare (for business class only) etc. are going to witness surge in their prices.

Introduction of the Good and Service tax will have both hot and cool effects on us as some of the commodities will cost us lower while others will cost us more than usual. We can say it has both good and bad.

Your reaction

NICE
SAD
FUNNY
OMG
WTF
WOW

React with gif

Leave a Comment:

Your email address will not be published. Required fields are marked *