Wednesday, July 26, 2017
GST (Goods and Service Tax)- Is it really pro-consumer?
GST has been introduced in the country with much fanfare issuing several political statements. One of the statement being heard from the politicians of the ruling party was that all consumers are excited with the implementation of GST. Even the Prime Minister termed it as Good and Sweet Tax. GST is on a basic principle of One Nation One Tax and it has got two elements i.e CGST (Central GST) and SGST (State GST).
Prior to introduction of GST, we have VAT system in country. In my view, there is no basic difference as both are with cascading effect at each point of sale i.e the additional tax on value addition and in both the tax systems, the input tax gets credited to the registered dealer by adjusting with output tax. It simply means if the registered dealer has paid an input tax of Rs. 100/- on a commodity and he sells the commodity to next buyer by charging tax at Rs. 105/-, the dealer has to pay the additional tax of Rs. 5/- only. Such facility was available in both terminology i.e VAT and GST. The only advantage seems to be that the quantum of VAT was differing from State to State and GST is with a uniform tax across the country. However, uniformity also does not seems to have meaning as the States are empowered to increase their component of GST i.e. SGST by 2% and local municipal bodies can also impose additional duties/ levies etc. Number of taxes like Excise duty etc. have been merged in GST. But what about overall amount of taxation? A glaring question is if the GST is really pro-consumer and the Governments are just caring about consumers then why the petroleum products and alcoholic products have been left out from the purview of GST.
How the consumers are getting excited with the implementation of GST is possibly not understandable. With the introduction of GST era, the prices of the commodities specially of recurring nature are expected to rise and with the rise in the prices which category of the consumer gets excited is beyond understanding of a common man like me? Over and above, the unethical business attitude of the businesses will have an opportunity of undue business gains. It may be true that the prices might have come down for certain items which are purchased once in the life time but what about purchases of recurring nature or of daily use.
Now a days, we middle class people are accustomed to order quite often a restaurant for home delivery of food items. Earlier on home delivery of food items used to be billed with 14% VAT. Now with GST, the tax would be 18%. In a composition scheme, the GST payable is 5% that means an effective reduction of tax from 14% to 5% i.e 9%. With the reduction in taxation from 14% pre GST era to 5% post GST era, the prices of Rs. 142/- should have fallen by 9%. Instead of price fall by 9%, there is an increase in prices by 30% making effective increase by close to 40%. The net impact ideally should have been 4% increase in the case where the restaurant is not under composition scheme of taxation but in reality it is expected to be more because of our various business models in the country. In fact under composition scheme, the prices should fall down by 9%. The example is substantiated with a bill of a restaurant namely Le-Chef at Sector 37 Faridabad on whom the order for 2 veg thallies was placed for home delivery. The example is clearly reflecting unfair business practices of Le-Chef Restaurant.
The ready made thaali used to be sold at Rs. 142/- inclusive of VAT on 30th June 2017 and now it is being sold at Rs. 190/- i.e with a net increase of more than 30% in prices. As can be seen in the invoice, the restaurant has opted for composite scheme of taxation i.e the tax being payable at 5% . The restaurant in a bid not to let the diners have feeling of significant impact of GST has offered a discount of 15% and this discount is likely to be withdrawn sooner or later as it is the general business practice prevalent in India. The prices of the commodities are increased with an initial discount or some free scheme offer and once the consumer gets accustomed to the increased price, the offers are withdrawn. Psychologically it gives a feeling to the buyers that the prices have not increased so the statistician take advantages of such psychology.