GST: A seven-year look back and impact on personal finances – Money News

It has been almost seven years since the introduction of Goods and Services Tax (GST) in India. GST has significantly contributed to the creation of a unified national market and reduced the cascade of taxes. A look back over the last seven years clearly indicates substantial growth in indirect tax revenues and an increase in the taxpayer base. It may be relevant to note that India witnessed a record gross GST collection of 2.10 lakh crore in the month of April 2024.

Increase in tax revenue can be mainly attributed to the growth of economy, increasing the taxpayer base, constantly expanding the range of transactions that are included in the tax net and significantly improving compliance. However, another key factor that drove this revenue growth was the inflationary trend in the economy during the period. At the time of introduction of ICMSIt was widely anticipated that since the earlier taxation of goods was subject to imposition by the Union through the collection of excise duties as well as by the States through the imposition of VAT, the consolidation of the same under a unified tax regime should result in lower effective tax rates, thereby having a positive impact on the family budget.

Critics of the reform point out that the subsumption of multiple indirect taxes into a single tax did not result in a reduction in prices for end consumers, as expected. At the time of introduction of GST, the Consumer Price Index (CPI), which means the measure of change in price levels of consumer goods and services, was predicted to remain at around 3.24%, given the assumption of that consumers’ purchasing power will increase in the absence of multiple taxes on goods and services. On the contrary, the CPI has remained constantly higher than the predicted value and for the month of May 2024, the CPI was recorded at 4.75%, which indicates that the prices of consumer goods and services have increased consistently, leading to a decrease in the purchasing power of the common man.

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While a lot can be said about the positive impact of GST on the economy and businesses, at a popular level, what matters most to the common man is the impact on personal finances. A large portion of a family’s standard monthly budget is spent on goods and services for personal consumption. This includes food and household items, healthcare, entertainment, transportation, mobile/data connectivity, as well as banking and insurance. While the introduction of GST has generally resulted in a reduction in effective tax rates on most everyday goods, the same is not true of everyday services, which have become slightly expensive.

Most unbranded and unprocessed food items were previously exempt from indirect taxes. This position continued under GST and unprocessed milk, meat, fish, vegetables and cereals remain exempt. However, wheat, flour, rice, etc. sold in packaging attracts ICMS at a rate of 5%. Kitchen utensils have been cheaper as GST is charged at 12% compared to the previous effective rates of 18-20%, although household appliances such as air conditioners have become expensive and are taxed at the highest rate of 28%. The same happens with carbonated drinks, which are being taxed at 40%, including a 12% compensation tax.

As far as services are concerned, there is a marginal increase in the effective tax rates for most services, which were previously charged at 15% Service Tax. Now, most of the services regularly used by a common man, including mobile services, DTH, data connectivity, repair and maintenance, banking services including loan processing, etc., are taxed at 18%, thus resulting in an increase in the burden on the family budget.

An interesting case is the acquisition of services through aggregators. While food delivery by restaurants and taxi services continues to be taxed at 5%, when these services are booked through aggregators such as ZomatoSwiggy, Ola or Uber, GST is levied at 18% on the fare charged by aggregators.

As motor fuels remain outside the ambit of GST, both the Union and States are taxing them by levying excise duty and VAT. This is resulting in cascading taxes and rising prices, which has been a major problem for consumers. It is time to build a consensus for the inclusion of motor skills and aviation fuels under the GST regime and a defined roadmap is introduced under this measure. This will bring significant relief to the consumer, given that the prices of these fuels significantly harm the family budget.

A Group of Ministers (GoM) was constituted by the GST council for rationalization of rates. While the GoM report is still awaited, with the economy firing on all cylinders following the covid disruption and revenues consistently reflecting a rising trend, the time could be ripe to consider a review in GST rates for services, which would provide significant relief to the common man. .

(By Manish Mishra, Partner and Practice Head – Indirect Tax, JSA Lawyers and Solicitors, and Dhwani Vyas – Associate, JSA Lawyers and Solicitors)

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