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One year of GST: Blame new tax regime for more expensive services

In the last one year, GST has gone through multiple changes in rates as well as regulations. As of now, under the GST regime, there are five tax slabs — 0%, 5%, 12%, 18% and 28%. In case of gold, GST is 3%. Besides the slab rates, there is an additional cess on certain items such as luxury cars.

india Updated: Jul 01, 2018 09:34 IST
Vivina Vishwanathan
Vivina Vishwanathan
Hindustan Times, Mumbai
GST,tax regime,expensive
Costs of telecom, banking services, insurance premium, car servicing and beauty parlour charges have gone up.(AFP/Photo for representation)

Have you noticed an increase in your phone bills or insurance premiums? You can blame it on the Goods and Services Tax (GST), which came into effect a year ago.

In the last one year, GST has gone through multiple changes in rates as well as regulations. As of now, under the GST regime, there are five tax slabs — 0%, 5%, 12%, 18% and 28%. In case of gold, GST is 3%. Besides the slab rates, there is an additional cess on certain items such as luxury cars.

Almost all services have got more expensive in the GST regime. “Overall, the cost of services in general has increased because the tax on services went up. Before GST, the rate was at 15%. After GST, most of the rates came in the 18% tax bracket,” said Rashmi Deshpande, associate partner at Khaitan & Co., a law firm.So you must have noticed an increase in phone bills, insurance premiums and banking services.

“Costs of telecom, banking services, insurance premium, car servicing and beauty parlour (charges) have gone up,” said Pratik Jain, partner and leader of the indirect tax practice at consulting firm PwC India.

In the case of restaurants, the rates have come down from 15% before GST took effect to 5% now. However, restaurants have increased the price of food. “Earlier when I collected higher tax from consumers, I could offset it. But now at 5% GST, there is no offset. Hence, we have increased the food price,” said a Mumbai-based Japanese food restaurant owner, who didn’t want to be identified.

As far as goods are concerned, theoretically, prices should have come down considering the effective tax rate has declined. “If you look at the effective tax rate, for most consumer goods, the tax rate under GST would be lesser. For instance, on detergents earlier the excise duty was say 12.5% plus VAT (value-added tax) of 13-14% — effective rate would have been around 27%-28%. Now the GST rate is 18%. However, the price will depend on whether the benefit has been passed on to the consumer,” said Jain.

Unfortunately, due to input cost inflation, overall prices have instead increased. “It is very difficult to make a generic statement whether the prices has gone up or down specifically due to GST. In case of pricing, besides the tax rate, there are other factors that come into play,” said Abhishek Jain, tax partner at EY India.

“For instance, many companies we have been talking to from an anti-profiteering perspective are saying they increase the price every year based on inflation. Some companies increase the cost by 6%-10% every year. Some companies factor in the increase in cost of raw material and revise the pricing. Price becomes a combination of various factors. It can’t be just tax. Tax is only one component of price increase,” he added. For instance, gold now has a 3% GST, which eventually the customer has to pay. Also the cost of gold is based on global factors.

In order to ensure GST benefits are passed on to the consumers, the government brought in anti-profiteering provisions. “Since there was an apprehension that the rate benefit would not be passed on to the consumer, anti-profiteering clause has been brought so that savings that happen due to reduction of tax should not be swallowed by the middlemen or distributors,” said Sachin Menon, national head of indirect tax at KPMG.

Questions have been raised over the anti-profiteering rule in certain sectors. One example is medicine.

“There hasn’t been any real impact of GST on the cost of the medicines that we prescribed. On an average, there is no major change,” said Mumbai-based Shruti Parikh, consulting gynaecologist and fertility specialist, Eye & I Eye Hospital and IVF (Fertility) Centre.

“The pricing (of medicines) is controlled by the drug price control order and national list of essential medicines. There is no increase in prices due to GST,” said Prasad Danave, president of the Maharashtra Retail Dispensing Chemists Association.

Overall, the shopping budget has gone up. Practically, other than tax, there are too many moving parts that have an impact ton he prices of goods — input cost inflation and demand, for instance.

RATE CARD
Goods and services tax has five slab rates--0%, 5%, 12%, 18% and 25%. Later 3% tax slab was added for gold. Besides the slab rate, there is additional cess on certain goods

First Published: Jul 01, 2018 07:58 IST