IMPACT_OF_GST_BILL_ON_CONSUMERS_&_ECONOMY

The Goods and Service Tax Bill or GST Bill, officially known as "The Constitution (122nd Amendment) Bill, 2014 is going to be implemented by the Government of India from April 2017 onwards. In this regard it is of prime importance to understand how the mechanism of GST works and what is going to be its impact.

Let’s have a look at the mechanism of GST with a small example. Imagine a manufacturer who buys raw material at Rs 100 for manufacturing a product including a tax payment of 10 Rs. Then he adds value to that product. Let us take the value added him would be 50 Rs. Now the product cost becomes 150 Rs.  Now at 10% tax rate the tax that needs to be paid will be 15 Rs which usually happens in normal regime. But in GST regime in the 15 Rs he can offset 10 Rs which he already paid while buying the raw materials, which effectively makes the tax to (15-10=5 Rs).

Non GST Regime	Cost of product	GST Regime	Cost of product
Stage 1  -  Manufacturer		Stage 1  -  Manufacturer
Manufacturer buys raw materials with tax including 10 Rs	=100 Rs	Manufacturer buys raw materials with tax including 10 Rs	= 100 Rs
Assume Manufacturer adds value of 50 Rs	= 150 Rs	Assume Manufacturer adds value of 50 Rs	= 150 Rs
Tax @ 10%	=15 Rs	Tax @ 10% But in GST We can offset previous paid tax	=(15 – 10 ) = 5 Rs
Stage 2 – Wholesaler		Stage 2 – Wholesaler
Assume Wholesaler adds value of 30 Rs	=(150+30)= 180 Rs	Assume Wholesaler adds value of 30 Rs	=(150+30)= 180 Rs
Tax @ 10%	= 18 Rs	Tax @ 10% But in GST We can offset previous paid tax	= (18-(10+5))= 3 Rs
Stage 3 – Retailer		Stage 3 – Retailer
Assume retailer adds value of 20 Rs	=(180+20)= 200 Rs	Assume retailer adds value of 20 Rs	=(180+20)= 200 Rs
Tax @ 10%	= 20 Rs	Tax @ 10% But in GST We can offset previous paid tax	=(20-(10+5+3))= 2 Rs
Total tax	= ( 10 +15+18+20) = 63 Rs	Total tax	= (10+5+3+2)= 20 Rs
Total cost of product ( 10 Rs tax is already included while buying raw material so it is not added)	= (200+15+18+20)= 253 Rs	Total cost of product ( 10 Rs tax is already included while buying raw material so it is not added	= (200+5+3+2)=    210 Rs

From the above data we can look at the cascading effect of the present taxation system which is creating a big burden on the consumers by increasing the prices of goods and services. With the implementation of the GST Bill this double taxation regime is going to come to an end. That is why it is mentioned by our Prime Minister as the “End of Tax Terrorism” in the country .With the implementation of the GST Bill the prices of goods and services will come down which will result in improving savings in the hands of the consumers and because of the marginal propensity to consume the consumers will consume more when they have more savings in their hands. This will result in the demand improvement which will lead to increased volumes for industries which will lead to industrial growth and employment creation. So the GST Bill will improve the GDP of the country and will be a key reform for development

By R.Girishchandra

MBA Final Year