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Sunday, Dec 15, 2019

GST leads to Rs 320 monthly saving for households: Study

A household saves Rs 94 a month on the consumption of cereals such as rice and crop because no GST is levied on them.

india Updated: Dec 01, 2019 05:41 IST
Rajeev Jayaswal
Rajeev Jayaswal
Hindustan Times, New Delhi
The note has been prepared by the ministry to ascertain the impact of GST, two government officials said on condition of anonymity.
The note has been prepared by the ministry to ascertain the impact of GST, two government officials said on condition of anonymity. (istockphoto/Representative Image)

Indian households are saving, on average, a monthly Rs 320 each on consumption of staples such as cereals, edible oil and sugar as well as snacks and sweets under the Goods and Services Tax (GST) regime that kicked into force on July 1, 2017, reducing the indirect tax burden on consumers, the finance ministry said in an internal note.

A household saves Rs 94 a month on the consumption of cereals such as rice and crop because no GST is levied on them. Indirect taxes on cereals ranged from 2.5% to 2.75% before the introduction of GST, according to the finance ministry note reviewed by Hindustan Times.

The note has been prepared by the ministry to ascertain the impact of GST, two government officials said on condition of anonymity. Wheat, rice and flour attracted 2.5%, 2.75% and 3.5% tax respectively before July 2017. Tax rates on these essential items were slashed to zero after the launch of the GST regime.

Some opposition parties have criticised GST for its allegedly flawed implementation by the ruling National Democratic Alliance (NDA) and increasing the compliance burden on small businesses. The internal note tries to blunt the criticism by focusing on the savings accruing to households. To be sure, in percentage terms, the Rs 320 per month in savings is a small portion of household earnings and spending.

The sum is not small for the poor and the neo-middle class, one of the officials cited above added.

“GST has helped the common man by adding some more money in his monthly kitty. Direct taxes are paid by those who have a certain level of income, but indirect taxes are paid by every person. In pre-GST era, it was largely in the range of 21% to 33% or even more on various goods or services or commodities but with the GST regime, the indirect taxes were reduced on most of the essential goods and services,” the official said.

Savings on edible oil after the introduction of the GST is estimated at Rs15 a month per household; the GST regime reduced tax on the product from 6% to 5%, the note said. Similarly, the tax rate on sugar was reduced from 6% (pre-GST) to 5%, resulting in a saving of Rs 6 per month.

The internal analysis also included monthly household consumption of chocolates, on which the saving was estimated at Rs 25 per month because the indirect tax on the product had been lowered to 18% from 28%.

A saving of Rs 13 per month is estimated on namkeen, or salted snacks, (12% levy pre-GST) and sweets (7%), on which the levy was reduced uniformly to 5% under the GST regime, the note said.

Each household saved Rs19 per month on cosmetics and toiletries after the tax incidence on them came down from 27% to 18%, Rs 11 a month on detergent (28% pre-GST levy slashed to 18%), Rs 43 on tiles and other sanitary material and Rs 24 on furniture and coir products, the finance ministry note said.

Prior to GST, tiles and other sanitary materials attracted 28% tax, furniture (12%) and coir products (28%). While the GST on coir products, tiles and other sanitary materials is 18%, it is only 5% on furniture.

According to the note, a household saved Rs 70 per month on other miscellaneous products such as spices, curry paste, hair oil, soap, toothpaste, rubber bands, footwear, brooms and school bags.

The officials quoted above said prices of most of the goods and services had come down because of a sharp reduction in indirect taxes under the GST regime.

“In fact, impact of GST on rates of several products is more than the differences in levies between pre- and post- GST regime because several other local taxes {used to be levied under the old regime}. Levies like entry tax and octroi had an impact of about 2% on the cost of products,” the second official said.

Consumers, particularly the middle class, have been also the beneficiaries of massive tax reductions on services under the GST system, the official said. “Two major services consumed by middle class, namely, health care services provided by clinical establishments and educational services provided by educational institutions are exempted from GST,” the official noted.

“The GST rate on services provided by restaurants, eating joints etc generally has been reduced from 18% to 5%. As against this, in the pre-GST period cumulative incidence of all subsumed taxes in respect of restaurant services was about 20%,” he added.

The GST rate on cinema theatres with an entry ticket of upto Rs 100 has been prescribed at a reduced rate of 18%. The pre-GST incidence of entertainment tax was about 30% while that of value-added tax (VAT) and excise duty was about 27%, he said.

“Entertainment tax was a turnover tax while GST is a value added tax,” he added.

Vishal Raheja, deputy general manager of tax research and consulting firm Taxmann said the introduction of GST, which subsumed a range of central, state and local taxes, had helped in removing the cascading effect of taxes.

“Earlier, there was tax on tax due to various indirect taxes mainly excise, VAT, octroi. Now, this cascading affect has been removed and government has specially focused on household items before affixing GST rates. The rates have been fixed and further rationalised in such a manner that necessary items for households have been categorised in lower tax slabs, which results in saving to common man post GST implementation.”

Some experts said the savings on household items should be seen in the context of the costs of other products and services and inflation.

“If the argument is that GST has allowed an urban household a saving of Rs 320 in a month, it seems weak, given that per capita income is roughly Rs10,500 per month; this is merely 3% of that,” sad Archit Gupta, founder and CEO of Cleartax, a financial technology platform providing tax and investment-related solution,

“More depth is required here, for example we cannot look at this on a stand-alone basis without including increase in cost of services consumed and rise in the cost of living, including that of fuel prices, since the coming of GST.”