What is a ‘Goods and Services Tax – GST’?
The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government.
Breaking down ‘Goods and Services Tax – GST’
The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and services. The business adds the GST to the price of the product; a customer who buys the product pays the sales price plus GST; and the GST portion is collected by the business or seller and forwarded to the government.
France was the first country to implement the GST in 1954, and since then an estimated 160 countries have adopted this tax system in some form or another. Some of the countries with GST include Canada, Vietnam, Australia, Singapore, UK, Monaco, Spain, Italy, Nigeria, Brazil, and South Korea. India is set to join the GST group on July 1, 2017.
Most countries with a GST have a single unified GST system, which means that a single tax rate is applied throughout the country. A country with a unified GST platform merges central taxes (e.g. sales tax, excise duty tax, and service tax) with state-level taxes (e.g. entertainment tax, entry tax, transer tax, sin tax, and luxury tax) and collects them as one single tax. These countries tax virtually everything at a single rate.
GST Good or Bad for India?
The current system with no GST implies that tax is paid on the value of goods and margin at every stage of the production process. This would translate to a higher amount of total taxes paid, which is carried down to the end consumer in the form of higher costs for goods and services. Implementing the GST system in India is therefore, a measure that will be used to reduce inflation in the long run, as prices for goods will be lower.
Key Highlights of GST
Most of the goods and services have been listed under the four broad tax slabs– 5 per cent, 12 per cent, 18 per cent and 28 per cent. Some items like gold and rough diamonds have exclusive tax rates while some have been exempted from taxation.
Goods : A number of food items have been exempted from any of the tax slabs. Fresh meat, fish, chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, all kinds of salt, jaggery and hulled cereal grains have been kept out of the taxation system. Bindi, sindoor, kajal, palmyra, human hair and bangles also do not attract any tax under GST. Drawing or colouring books alongside stamps, judicial papers, printed books, newspapers also fall under this category. Other items in the exempted list include jute and handloom, Bones and horn cores, hoof meal, horn meal, bone grist, bone meal, etc.
Services: Grandfathering service has been exempted under GST. A low budget holiday may get cheaper as hotels and lodges with tariff below Rs 1,000 are in this category. Rough precious and semi-precious stones will attract GST rate of 0.25 per cent.
Goods: An array of food items such as fish fillet, packaged food items, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, cashew nut, cashew nut in shell, raisin, ice and snow will be priced at 5 per cent tax. Apparel below Rs 1000 and footwear below Rs 500 are also in this category. Some items in the fuel category like bio gas, kerosene and coal are in this slab. Items from the health industry in this category include medicine, insulin and stent. Other items in this slab are agarbatti (incense sticks), kites, postage or revenue stamps, stamp-post marks, fertilizers, first-day covers and lifeboats.
Services: Transport services like railways and air travel fall under this category. Small restaurants will also be under the 5% category. Gold has been taxed under a separate slab of 3 per cent.
Goods: Yet another category of edibles like frozen meat products, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, namkeen and ketchup & sauces will attract 12 per cent tax. Cellphones will also be priced in this category. Cutlery items like Spoons, forks, ladles, skimmers, cake servers, fish knives, tongs fall in this slab. Ayurvedic medicines and all diagnostic kits and reagents are taxed at 12 per cent. Utility items like tooth powder, umbrella, sewing machine and spectacles and indoor game items like playing cards, chess board, carom board and other board games like ludo are in this slab. Apparel above Rs 1000 will attract 12 per cent tax.
Services: Non-AC hotels, business class air ticket, state-run lottery, work contracts will fall under 12 per cent GST tax slab
Goods: Another set of consumables are listed under the 18 per cent category- biscuits, flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings and mineral water.
Footwear costing more than Rs 500 are in this category.
Items like Printed circuits, camera, speakers and monitors, printers (other than multi function printers), electrical transformer, CCTV, optical fiber are priced at 18 per cent tax under GST.
Other items in this slab include bidi leaves, tissues, envelopes, sanitary napkins, note books, steel products, kajal pencil sticks, headgear and its parts, aluminium foil, weighing machinery (other than electric or electronic weighing machinery), bamboo furniture, swimming pools and padding pools.
Services: AC hotels that serve liquor, telecom services, IT services, branded garments and financial services will attract 18 per cent tax under GST.
Goods: The residuary set of edibles which include chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala and aerated water fall in this category. Bidi attracts 28 per cent tax. An array of personal care items like deodorants, shaving creams, after shave, hair shampoo, dye and sunscreen are in the highest tax slab as well. Paint, wallpaper and ceramic tiles are priced at 28 per cent. Water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers and hair clippers have been clubbed together in this slab. Automobiles, motorcycles and aircraft for personal use will attract 28 % tax – the highest under GST system.
Services: 5-star hotels, race club betting, private lottery and movie tickets above Rs 100 are under the 28 per cent category. The GST on restaurants in five-star and luxury hotels has been reduced to 18 per cent from 28 per cent, bringing it at par with standalone air-conditioned (AC) restaurants. Even at some air-conditioned restaurants, the bills may come down, as GST will subsume service tax and value-added tax (VAT) that is currently charged.
GST rollout: What will be cheaper or dearer
Here’s a comprehensive list of goods and services which have become cheaper and costlier starting today.
Items that will now cost less:
Eatables 1. Milk powder 2. Curd 3. Butter milk 4. Unbranded natural honey 5. Dairy spreads 6. Cheese 7. Spices 8. Tea 9. Wheat 10. Rice 11. Flour 12. Cashew nuts 13. Groundnut oil 14. Palm oil 15. Sunflower oil 16. Coconut oil 17. Mustard oil 18. Sugar 19. Jaggery 20. Sugar confectionery 21. Pasta 22. Spaghetti 23. Macaroni 24. Noodles 25. Fruit and vegetables 26. Pickle 27. Murabba 28. Chutney 29. Sweetmeats 30. Ketchup 31. Sauces 32. Toppings and spreads 33. Instant food mixes 34. Mineral water 35. ice 36. Sugar 37. Khandsari 38. Biscuits 39. Raisins and gum 40. Baking powder 41. Margarine
Items of daily use 1. Bathing soap 2. Hair oil 3. Detergent powder 4. Soap 5. Tissue papers 6. Napkins 7. Matchsticks 8. Candles 9. Coal 10. Kerosene 11. LPG domestic 12. Spoons 13. Forks 14. Ladles 15. Skimmers 16. Cake servers 17. Fish knives 18. Tongs 19. Agarbatti 20. Toothpaste 21. Tooth powder 22. Hair oil 23. Kajal 24. LPG stove 25. Plastic tarpaulin
Stationery 1. Notebooks 2. Pens 3. All types of paper 4. Graph paper 5. School bag 6. Exercise books 7. Picture, drawing and colouring books 8. Parchment paper 9. Carbon paper 10. Printers
Healthcare 1. Insulin 2. X-ray films for medical use 3. Diagnostic kits 4. Glasses for corrective spectacles 5. Medicines for diabetes, cancer
Apparels 1. Silk 2. Woollen fabrics 3. Khadi yarn 4. Gandhi topi 5. Footwear below Rs 500 6. Apparel up to Rs 1,000
Others 1. Diesel engines of power not exceeding 15HP 2. Tractor rear tyres and tubes 3. Weighing machinery 4. Static converters (UPS) 5. Electric transformers 6. Winding wires 7. Helmet 8. Crackers and explosives 9. Lubricants 10. Bikes 11. Movie tickets less than Rs 100 12. Kites 13. Luxury cars 14. Motorcycles 15. Scooters 16. Economy-class air tickets 17. Hotels with tariff below Rs 7,500 18. Cement 19. Fly ash bricks and blocks
Items that will now cost more:
1. Paneer 2. Cornflakes 3. Coffee 4. Masala powder 5. Curd 6. Ghee 7. Biscuits 8. Chewing gum 9. Ice-cream 10. Tea 11. Chocolates 12. Spices 13. Ayurvedic and other alternative medicines 14. Gold 15. Hotels with room tariffs above Rs 7,500 16. Fine-dining restaurants 17. Restaurants inside five-star hotels 18. Movie tickets above Rs 100 19. Concerts 20. IPL matches 21. Clothes above Rs 1,000 22. Shampoos 23. Perfumes 24. AC and first-class rail tickets 25. Business-class 26. Air-conditioner 27. Fridge 28. Washing machine 29. Television 30. Courier services 31. Mobile phone charges 32. Insurance premiums 33. Banking charges 34. Broadband services 35. Credit card bill 36. Two-wheelers with engine capacity of more than 350 cc 37. Small and mid-size cars 38. SUVs 39. Fishing nets 40. Smartphones 41. Laptops 42. Desktops 43. Yoga mats
The idea behind having one consolidated indirect tax to subsume multiple currently existing indirect taxes is to benefit the Indian economy in a number of ways:
- It will help the country’s businesses gain a level playing field
- It will put us on par with foreign nations who have a more structured tax system
- It will also translate into gains for the end consumer who not have to pay cascading taxes any more
- There will now be a single tax on goods and services
In addition to the above,
- The Goods and Services Tax Law aims at streamlining the indirect taxation regime. As mentioned above, GST will subsume all indirect taxes levied on goods and service, including State and Central level taxes. The GST mechanism is an advancement on the VAT system, the idea being that a unified GST Law will create a seamless nationwide market.
- It is also expected that Goods and Services Tax will improve the collection of taxes as well as boost the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.