Are GST rates rational enough for rural people?
Much awaited Goods and Services Tax (GST) will be rolled out across the country from July1, 2017. The GST Council has almost finalised the rates. BK Jha analyses its impact
The impact of Goods and Services Tax (GST) would be a major game changer for the economy for accelerating the economic growth and generating more and more employment opportunities. The government has certainly taken some pre emptive measures to keep inflation under check as essential items including food, which presently constitute roughly half of the consumer inflation basket, to be taxed at zero rate.
In a macro dynamic view the GST will have certain direct and indirect effects on India’s rural population; the direct benefits include increase in the income levels, reduction in prices of goods consumed by them, efficiency and increased government spending on rural sector, betterment in rural infrastructure and generation of employment opportunities.
Implementation of the GST will thus enable the farmers to generate a better understanding of tax system and will also remove the middle men dealing which holds dominant position presently in all dealings done by the rural farmers, enabling them to deal directly and be the direct beneficiaries.
The GST Council : On the toes
The all powerful GST Council recently met in Srinagar to finalise the rates and with a broader consensus it finalised rates of over 1200 products and services. As earlier, health and education remain exempted. The Council has tried to be rational in terms of incidence of duties on products
which are widely consumed in rural India.
The GST rates for all but six items were finalised. Foodgrains and common-use products like hair oil, soaps and toothpaste as also electricity will cost less from July 1 when the GST is scheduled to be rolled out. While the Council fitted all but six items in 5, 12, 18 or 28 percent tax bracket. Prices of foodgrains, especially cereals including wheat and rice, will come down as they will be exempt from the GST. Currently, some states levy Value Added Tax (VAT) on them.
Union Finance Minister Arun Jaitley said, “Rates have been finalised. The standard rate items of 12.5 per cent and 15 per cent, plus the cascading effect of local taxes, the tax rate was going up to 30-31 per cent. From that level, we have brought it down to 28 per cent.”
“Some are items to be used by common man soap, oil -- that has been brought down to 18 per cent. So there will be a substantial reduction as far as those items are concerned. We have kept one criteria in mind that the overall impact is not inflation, in fact it brings down the costs," he added.
Jaitley said the key feature of the rate decision has been that "tax rate under GST will not go up for any of the commodities. There is no increase. On many commodities, there is a reduction particularly because the cascading effect of tax is gone."
"Of several commodities, we have consciously brought down the tax. In the overall basket there would be a reduction, but we are banking on the hope that because of a more efficient system, evasion would be checked and tax buoyancy would go up,” he added.
Indications are clear that the GST will bring benefits to the consumers due to reduced tax rates on various commodities such as packaged cement, medicaments, smart phones, and medical devices. Packaged cement attracts central excise duty, VAT and other levies. At these rates, the present total tax incidence works out to more than 29 percent. If we include tax incidence on account of CST, octroi, entry tax, etc., the present total tax incidence would work out to more than 31 percent. As against this, the proposed GST rate for cement is 28 percent.
Healthcare & GST
There will be lesser tax burden in case of Medicaments, including Ayurvedic, Unani, Siddha, Homeopathic or Bio-chemic systems also. Medicaments, in general, attract 6 percent central excise duty and 5 percent VAT. Further, CST, octroi, entry tax, etc. are also applicable in general. At these rates, the present total tax incidence works out to more than 13 percent. As against this, the proposed GST rate on medicines, including ayurvedic medicines, is 12 percent. Likewise prices of smart phones are also likely to dip slightly with the proposed 12 percent GST rate.
According to the Apex healthcare Industry body NATHEALTH, exempting healthcare services from GST will provide much needed support for progress of the healthcare sector.
“We had recommended exemption for healthcare services from GST and rational rates for items which are widely used in the
In the overall basket there would be a reduction, but we are banking on the hope that because of a more efficient system, evasion would be checked and tax buoyancy would go up
sector. This decision along with the directions set by the government in the recently announced National Health Policy should set a positive roadmap for the health of the nation,” said Anjan Bose, Secretary General, NATHEALTH.
“Exemption on services and rational rates on medical items should also send a positive signal to the investors for infusing much - needed funds into healthcare and accelerate innovation for improving access to affordable Healthcare,” he added.
Impact of GST on Rural Economy
“GST will be a messiah for the rural economy in terms of increased demand for durables and better understanding of the taxation. As 70 percent of the population is in the rural segments, GST will become a catalyst for common rural market in India with the removal of state level barriers,” said SP Sharma Chief Economist, PHDCCI
“The implementation of GST is expected to bring uniformity across states and centre which would make tax support policy of a particular commodity effective. The ease of availing tax credit under GST regime is expected to boost inter-state trade leading to achieving the objectives of National Agricultural Market,” he added.
The implementation of GST is expected to facilitate the implementation of National Agricultural Market on account of subsuming all kinds of taxes/ cess on marketing of agricultural produce as well as it would ease interstate movement of agricultural commodities which would improve marketing efficiency, facilitate development of virtual markets through warehouses and reduce overhead marketing cost.
Since agricultural commodities are perishable in nature in varying degrees therefore trade is influenced by the time required for
Exemption on services and rational rates on medical items should also send a positive signal to the investors for infusing much - needed funds into healthcare and accelerate innovation for improving access The implementation of GST is expected to facilitate the implementation of National Agricultural Market on account of subsuming all kinds of taxes/cess on marketing of agricultural produce as well as it would ease interstate movement
transportation. The simple uniform tax regime is expected to improve the transportation time, and curtail wastage of precious food. The present system many times, makes it difficult to implement tax support provided by the centre for an agricommodity due to heterogeneous policies adopted by the different states.
Integrated GST vs Others
Uniform tax system would certainly benefit rural people. Middlemen will be wiped out. Entrepreneurship will be encouraged. However, there is need to incentivise rural entrepreneurs.
“There will be need to effectively synchronise all forms of uniform taxation system. Integrated, Central, State and UT GST. Value added credits need to be timely set off . The IGST will facilitate easy movement of goods across the country and this will certainly boost rural economy,” said Sanjay Sabran, Financial Analyst and Head of Sanjay Sabran & Company.
“Universal set off tax paid under IGST against CGST and SGST will boost rural economy as goods movement across the country would be easy and smooth. Further the government should develop facilitation centre at every Mandi for generating IGST online bills, then only rural entrepreneurs will be free from the clutches of middlemen and real benefits of the new regime would be visible,” he added.
Furthermore, the government should incentivise to all the billings raised in backward districts and rural areas and create conducive business environment in rural India.
GST will be a messiah for the rural economy in terms of increased demand for durables and better understanding of the taxation. As 70 percent of the population is in the rural segments, GST will become a catalyst for common rural market in India with the removal of state level barriers The Government should reconsider the clause of localised evidence for registration in various states for payment of taxes and compliance of SGST requirements
“The Government should reconsider the clause of localised evidence for registration in various states for payment of taxes and compliance of SGST requirements. Instead of localised evidence, the government should permit universal evidence by connecting it through Aadhar. This will not only reduce administrative cost for the entrepreneurs but also facilitate ease of doing business,” said Sabran.
Thus GST will promote ease of doing businesses, help in reduction of transactions costs to businesses, boost manufacturing of goods and supply of services, increase pricecost margins of manufacturers, generate employment opportunities for the vast pool of young population with enhanced production possibility frontiers and push overall GDP growth of the economy in much higher trajectory. The need of the hour is to spread awareness at a larger scale about the implementation procedure and advantages of GST to every citizen of the country.
Union Finance Minister
Secretary General, NATHEALTH
Financial Expert and Analyst
Chief Economist, PHDCCI