The Impact of GST on Prices of Goods and Services in India

Posted In | Finance | Accounting Software | India Accounting Tax

Goods and Services Tax (GST), introduced in India on 1st July 2017, is a comprehensive, multi-stage, destination-based tax that is levied on every value addition in the supply chain. It is a single indirect tax that subsumes multiple taxes such as excise duty, service tax, VAT, and other local taxes. The primary objective of GST was to streamline the tax structure, remove the cascading effect of taxes, and make India a unified market.

 

How GST Impacts the Pricing of Goods and Services?

The implementation of GST has had a significant impact on the prices of goods and services in India. The tax rates applicable under GST are divided into five slabs: 0%, 5%, 12%, 18%, and 28%. The impact of GST on the prices of goods and services depends on the tax rate applicable to a particular product or service and its comparison with the tax rates applicable before GST.

 

Positive Impact of GST on Prices

The introduction of GST has resulted in the reduction of the overall tax burden on several goods and services. The removal of the cascading effect of taxes has led to reduced production costs, ultimately benefiting the consumer with lower prices. Some of the goods and services that have seen a decrease in prices post-GST implementation are:
 

• FMCG products: Fast-moving consumer goods (FMCG) such as soaps, toothpaste, hair oil, and other packaged products have seen a decrease in prices due to the reduced tax burden.
   

• Electronics: Prices of electronic items like mobile phones, televisions, and home appliances have come down due to the lower tax rate under the GST regime.
   

• Automobiles: The automobile sector has witnessed a reduction in prices, especially for two-wheelers and small cars, owing to the lower tax rates under GST.
   

• Transportation services: The transportation of goods and services has become cheaper due to the seamless flow of input tax credit and the removal of state entry taxes.
   

Negative Impact of GST on Prices

While the GST has benefited some sectors with reduced prices, there are a few sectors where the prices of goods and services have increased. Some of the goods and services that have seen a rise in prices post-GST implementation are:
 

• Telecom services: The tax rate on telecom services has increased from 15% to 18%, resulting in higher mobile bills for consumers.
   

• Restaurants and hotels: Though GST has simplified the tax structure for restaurants and hotels, the higher tax rates have led to increased prices for customers.
   

• Insurance premiums: The tax rate on insurance premiums has increased from 15% to 18%, leading to a rise in insurance costs for policyholders.
   

• Textile industry: The textile industry, which was earlier exempted from tax, now falls under the 5% tax slab, resulting in an increase in the prices of garments and fabrics.

 

The impact of GST on the prices of goods and services in India has been a mixed bag. While some sectors have seen a reduction in prices due to lower tax rates and the removal of the cascading effect of taxes, others have witnessed an increase in prices due to higher tax rates. Overall, GST has simplified the tax structure and made it more transparent, which is expected to benefit the Indian economy in the long run.