The GST was designed to simplify India's complex indirect tax structure, to formalize businesses and fight the 'shadow' economy. Photo: Reuters
The GST was designed to simplify India's complex indirect tax structure, to formalize businesses and fight the 'shadow' economy. Photo: Reuters

The Goods and Services tax (GST), which the Indian government introduced with much fanfare at the stroke of June 30-July 1 midnight, is expected to have a wide ranging impact on the way businesses are run in the country.

Traders and customers are busy trying to size up this new indirect tax reform and the implications it will have on their lives and the Indian economy.

The GST bill intends to simplify India’s complex indirect tax system. Taxes such as excise duty, value added tax (both taxes on manufactured goods), Central sales tax (levied on inter-state trade) and octroi (levied on goods entering a district/city), among others, will all be wrapped up and replaced by a single tax: the GST. It is also expected to formalize businesses and fight shadow economy.

However, the new tax regime has its own set of complexities. It has been divided into four slabs – 5%, 12%, 18% and 28%. The last slab of 28% is the highest in the world. Additionally, goods like luxury cars, tobacco, and aerated beverages will be taxed 28% plus a cess, effectively taking the tax rate to around 40%.

Market experts are still trying to assess how the new tax regime will impact inflation, gross domestic product, and profit margins of firms. They, however, are unanimous in their belief that the markets could remain under pressure as the transition to the GST is likely to be fraught with hiccups, which could disrupt economic activities, reports Business Standard.

One of the early visible fall-outs is the reduction of prices by many car and two-wheeler manufacturers. Leading car manufacturer and Suzuki Motor Corporation’s Indian unit Maruti Suzuki announced price cuts on all its models by up to 3%. This was followed by slashing of prices by most car and two-wheeler brands.

Even high end car makers such as Mercedes Benz and BMW have cut prices as under the previous taxation system they attracted around 50% tax, whereas under GST regime they would be charged 28%, plus a cess of 15%.

Many of those eating out are upset that they are being told to fork out 18% extra for their restaurant bills. A lot of customers posted a copy of their bill on social networking sites along with sarcastic and angry comments.

The GST regime is expected to raise the prices of many drugs by more than 2% as they will be taxed at 12%. However, the price of insulin and other critical care products for kidney ailments and cancer, as well as anti-retrovirals is expected to fall as they will be taxed only 5%. Industry leaders say patients can continue to buy essential medicines at the pre-GST price till new batches arrive at pharmacies, reports Times of India.

Though experts and economists claim that GST will be beneficial in the long run, small businessmen are unclear about nuts and bolts of the new tax norm. Many of them do not even have personal computers and the culture of issuing a tax invoice is almost non-existent in smaller towns. A large number of small traders are approaching chartered accountants, who are fleecing them by charging exorbitant rates.

Most of these businessmen are either wary or finding it difficult to registering themselves at the GSTN portal, a mandatory required for commercial tax payers. They are required to shift their sales and service tax registrations to GST Network (GSTN), a web-based system for payment, information and documentation.

There have been lots of protests from various trade bodies across the country. Textile traders in many parts of the country went on a three-day long strike against  the levying of 5% GST, which so far was tax free. Cinema halls in the southern state of Tamil Nadu will remain shut for an indefinite period as in addition to 28% GST they will also have to pay 30% entertainment tax.