GST is scheduled to be rolled out on 1st July 2017. The buzz has already been created that it is bound to bring down the prices for end consumers (in most of the commodities). Let's look at some facts:-
1. Prices of goods sold without packing (local kirana shop weighing the daal and giving it to you) Well the good news is that there might be a significant reduction in prices here. Is it so? However the catch is that most of these transactions are anyways done in cash (without bill) and therefore the impact on price reduction would be minimal. Let's except, the effect of demonetization is over and the business is as usual.
2. Prices of packed goods. Packed goods comes with MRP and with the rising culture of online shopping, society shops and malls, the discounts are often fake (given after escalation on prices). MRP is generally very high from the selling price of the manufacturer to its dealer. It takes in account for the margins of Dealer, whole seller, retailer and the logistic costs in it.
Effect of tax: Effect of VAT was never there as it was available as MODVAT already. To counter the CST, most companies had local depot and use to give VAT bill to the Distributor/ retailor/ super stockiest. Even otherwise, the CST would have been just 2% on Form C. Now we see that GST will have minimum effect of the prices of the packed commodities which are sold on MRP.
3. Builder Flats
Builders have done a basic price agreement with the buyers. Taxes are on the prices charged from the buyers (let it be VAT, service tax or not coming GST). There has been no transparency from the builder side, be it the site plan, approvals, actual status, possession etc., forget about the costing. Builder (as a community) have a reputation of blood hound and being unfair on all aspects. It is very unlikely that they will pass on any benefit to buyers which they get from GST.
Builder have already sent the letter to the buyers to get the complete payment which will save buyers of 7.5% or 6.5% of taxes, where there is no visibility of possession of the flats. Government was prompt enough to issue warning to builders against this, but it did have little effect on builders. Even after the warning, the letters are being issued.
I am sure few buyers will fall in the trap, without realizing that they will be paying 8.5% of home loan on the amount.
4. On All Businesses Entities
GST is a technology driven scheme and many traders are away from the technology, especially when it comes to monthly compliance. There has already been huge expenditure on upgrading the ERPs or buying it. Compliance will increase the return costs of the business as more and more involvement of CA?s is seen on monthly basis. Additional staff will have to be deployed for the compliance.
All this cost will eventually be passed to the consumer.
So does the GST really help?
GST is a very big and much awaited step by the government of India. Most of the commodities had double tax on manufacturers. They charged Excise and VAT both on their bills. The dealer could take the benefit only of VAT. The excise (which in some cases was as high as 30%) was added in the cost of the dealer. Manufacturers will close depots which were opened for the tax purpose (some depots were for the logistic ease). This will reduce the costs of the brands. Similarly, a trader could not get the benefit of service tax and it added to his cost (transport, subscriptions etc.). Now since there will be one tax, he would be able to take the MODVAT of the tax and thus reducing his buying cost. The cost implication on consumer would depend on the fairness of the trader and the hunger of profit of the trader as the MRP is unlikely to change and there is no hope from builders.