Chandigarh, July 30: The Constitution Amendment Bill paving the way for Goods and Services Tax (GST), expected to be placed in Rajya Sabha next week, will eventually end up hurting the consumers. Stating this at the Press Club today, well-known economist and policy analyst Devinder Sharma said that if the Service Tax is raised to 18 per cent as the Revenue Neutral Rate (RNR) under the proposed GST, the consumers will end up paying approximately Rs 4-lakh crore as service tax every year.
“When the service tax was 12.36 per cent in 2014-15, the government was earning more than Rs 2-lakh crore from service tax alone. With the service tax expected to hit 18 per cent when GST comes into effect, the revenue collection for service tax alone will double.” In fact, the government has raised service tax in phases – from 12.36 per cent to 14 per cent, and then make it 15 per cent –to simply absorb the shock of a steep hike in service tax once the GST is implemented.” He was chairing a talk by Anil Sharma, elected member of the Northern Regional Council of the Institute of Cost Accountant of India, on “What is GST? What does it mean for us, for industry and for economic growth?”
Addressing the media at the Chandigarh Press Club, Anil Sharma explained the intricate details of the proposed model draft GST law. “It is true that the cascading effects of taxes will be eliminated, and 22 to 25 taxes will be subsumed in GST, and as a result the movement of goods will speed up across the country. This will reduce the logistic cost of the industry and at the same time will make it easy for business. But four prominent sectors like petroleum products, power, real estate and tobacco and liquor for human consumption has been kept outside the purview of GST. This will certainly have adverse impact on seamless flow of taxes. Petroleum products alone constitute 40 per cent of the revenue collections and it will therefore negate some of the positive impact expected from GST. The government has promised to bring petroleum under the purview in a couple of years.
Automobile sector as well as the luxury sectors will benefit from GST. For example, cars , which attract 24 per cent excise duty and 12.5 per cent sales tax (which varies across States) will come down to 18 per cent. But then the question is automobiles like cars are purchased once in 10 to 15 years and therefore the benefit is limited. “The impact therefore will have to be worked out sector by sector,” he added.
Explaining this in simple terms, Anil Sharma said that excise and sale tax will be calculated on the same value of a product whereas in the existing system sales tax is calculated on basic cost plus excise. “At present, an excise duty of 14 per cent is applicable on a mobile phone costing Rs 20,000. This comes to Rs 22,800. This will attract a sales tax of 5 per cent raising the final price of the instrument to Rs 23,940. With GST, the cascading effect will be eliminated as a result the mobile will now be priced at Rs 23,800.” The Rs 140 reduction in the price of one mobile may look to be insignificant but just imagine the economic saving when this is applied on a mass scale to all products and services.
But there is another aspect, which also needs to be understood. Anil Sharma said: “A branded shirt costing Rs 1,000 fetches excise and sales tax of 7 per cent at present. This means the branded shirt costing Rs 1,000 eventually becomes available to the consumer for Rs 1,070. Under GST, the price will go up because of an RNR of 18 per cent, thereby the cost of the shirt jumping to Rs 1,180.” Providing another example of pharmaceutical drugs, he said most medicines attract a maximum of 6 per cent excise duty plus 5 per cent sales tax. “With the RNR rate of 18 per cent, the retail price will go up.”
To make up for the immediate shortfall in revenue for the States, the government has already promised to make up for the losses for the next five years. “The States will gain from revenue accruing from service tax as 50 per cent of it will go to State coffers. This will hopefully offset the loss that the States will accrue from GST implementation, Anil Sharma added. He said that the Centre already has made a lot of effort to allay the fears of the States. This is politically a very important step.
Summing up the discussions, Devinder Sharma said that with the GST bill slated to be passed by Parliament next week, a nationwide debate will hopefully begin so as to understand the gains and losses, especially to the consumers. “I don’t understand why the consumer is being made to pay the cost of bringing in GST. If my neighbour is renovating his house, he doesn’t give me the bill for renovation. Since the GST is a reform for the industry, why should the consumers be made to pay the cost? Why can’t the industry be made to pay the cost?”To a question how will this be possible, Mr Sharma clarified: “India Inc has received tax concessions to the tune of Rs 48-lakh crore in the past 12 years. They have enough money. The industry therefore should be directed to pay the implementation cost of GST.”
Earlier, the main speaker Anil Sharma, and the Chairman of the session, Devinder Sharma ,were welcomed by the President of the Press Club, Jaswant Rana, and the Secretary, Joginder Singh.