Impact of GST on Business Environment and Small Businesses in India

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GST was introduced on 1st of July, 2017. It is an indirect tax that is only applicable to businesses and has
replaced the old tax system. It is one of the biggest economic reforms since India’s independence and is certainly going to affect the daily life of a common man. Of course, it will not change the way you pay your taxes, but due to change in the rates of the goods and services, there will definitely be a change in your purchases and spending habits.

However, it is largely being assumed to be transformative due to its win-win nature, and will be beneficial throughout the value chain as well as follows:

For Government: Simpler administration of taxes and increased tax payers will decrease tax evasion, create a digital trail of business and taxes and increase the revenues earned from tax. This will eventually lead to more investments, higher growth and more jobs.

For Businesses: This will be a great opportunity for businesses as they will see easier tax compliance, subsumed taxes, reduced tax rates and easier interstate movement. Together, they will help create a business-friendly environment that will lead to more investments, business opportunities, creation of jobs and higher growth.

For Consumer: Fewer taxes for businesses mean reduction of cost of goods and services. This will eventually be passed on to the end-consumer in the form of lower prices of goods and services.

That said, the impact of GST on your budget will be different depending on your family income, your household expenses, the kind of lifestyle you lead, your investments, your short/long term goals and your spending habits.

Here's a list of products and services that will have a direct impact on your monthly expenses

Items of regular consumption

Some of these include vegetables, fruits, milk, butter milk, curd, salt, jaggery, cereal grains, fresh meat, fish, chicken, eggs etc. These items were placed anywhere between
0% - 10% tax slab in the old tax system. Under GST, these items have been exempted.

Telecom services

Earlier the taxes applicable on telecom services (landline, broadband, mobile) were 15%. This has now increased to 18% under GST.

Education

In the old tax system, education sector was charged with service tax. Although, educational services have been exempted in the current GST system, the surrounding products or services are charged under GST. Some of the products like stapler, pencil, sharpener, exercise book and ball pen attract a 12% GST, and products like school bag, fountain pen, nib, refill have been placed under the 18% GST slab. Apart from these, the tax on coaching fees has also been increased from 15% to 18%.

Transport services

The cost of travelling will change depending on the type of travel you opt for.

Cabs: Using cab aggregators like Ola, Uber, Meru Cab and Mega Cab has become slightly cheaper to 5% from 6% under GST. Similar is the case for renting of vehicles from car rental services like Zoom Car and Myles.
Public Transport: Inter-state movement of any mode of conveyance from one location to another, including local trains, metro, local buses, mini-buses and pick-up vans have been exempted from tax. However, the tax on fares for first-class coaches of local trains has gone up marginally from 4.5% to 5% under GST.
Personal Vehicle: Under GST, the taxes on small-and-mid-sized cars have been dropped down from 28% & 39% respectively, to 18% flat, and the taxes on luxury and SUV cars have been reduced from 42% & 45% respectively, to 28% flat.

Fuel products like petrol and diesel have been kept outside the GST ambit for now.

Financial services

Most banking and financial services that attracted a 15% tax in the old tax system have been placed under the 18% GST slab. This means charges on fund transfers, processing fees, credit card payments, premium payments and all other fees will cost more.

Personal Care and Clothing

Under GST, not just grooming, but getting ready for parties, college and work has also got cheaper. The taxes on personal care products like soaps, hair oil, detergent, kajal, tissue paper and toothpaste have been brought down from 24-28% to 18%. On the other end, silk and jute have been exempted from taxes, cotton and natural fibre is taxed at 5%, man-made fibres at 18%, apparel costing below INR 1,000 is placed under the 5% tax slab, and a GST of 5% has been imposed on footwear below INR 500.

Medicines

There hasn’t been a huge impact of GST on medicines. In the old tax system, several life-saving drugs that treat diseases like malaria, HIV-AIDS, TB and Diabetes were exempted from excise and customs duties, and a few states used to charge 5% tax on these drugs. Under GST, all these taxes have been subsumed into the 5% tax bracket with a marginal increase in the prices of these drugs. Furthermore, there will be an addition of 12% GST on the formulations, and 18% GST on the APIs (active pharmaceutical ingredients) that are required to make the final pill or tablet.

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Entertainment & Leisure

Restaurants

There are different tax slabs for restaurants depending on their turnover and whether they have air-conditioning or not. Restaurants with a turnover of less than INR 50 lac are charged a GST of 5%, Non-AC restaurants are charged a GST of 12%, AC restaurants with liquor license are charged a GST of 18%
and restaurants in 5-star hotels attracts a GST of 28%.

Movie Tickets

In the old tax system, there was a separate service tax and states entertainment taxes (which was around 30-50%) on cinemas. Under GST, movie tickets in cinema halls are charged with 28% GST. This is aside the tax on junk food and aerated drinks.

Other Entertainment

Visits to theme parks and sporting events attract a GST of 28%, and taxes on playing cards, chess board, carrom board and other board games have been reduced to 12%.

Tobacco products

Cigarettes and Cigars are charged with a GST of 28% along with an additional cess of 21% or INR 4.170 per stick. Chewing tobacco has also been kept under the same 28% GST bracket; however, an additional cess of 142% would be levied upon tobacco (with lime tube) and 160% on tobacco (without lime tube).

All and all, you may not feel a hard financial pinch as the hike in taxes on certain services might get negated by the drop in the same on other commodities. So, there's no reason to lose your sleep worrying about GST.