How pocket-friendly will GST be for you

GST council has agreed on rate structure as 0%, 5%, 12%, 18% and 28%. Having a slab rate structure in GST is a departure from popular international practice of having one rate of tax for all goods and services.

Council has not announced schedule of goods and services under each slab rate. The FM has mentioned that highest tax slab rate will be applicable to items currently taxed at 30% to 31% (excise duty plus VAT) will be taxed at a demerit rate of 28%.

Some of the goods taxed at 28% will be charged with an additional cess for five years. However, with use of best estimates and some publicly available information, the likely impact on MRP of the products can be summarised below:


Note: Negative changes indicate possible reduction in cost and positive change indicate rise in cost. Maharashtra VAT rates have been taken for the computation; Impact of the entry tax and octroi not captured; Margins in supply chain have been assumed.

Also Read: GST a win-win deal for both Indian industry and aam aadmi

Impact on manufactured or imported consumer goods
1. In the supply chain today, excise duty, CVD and CST are not available as set off against VAT or CST on sale of goods. This cascading effect of tax is not likely to continue in GST.
2. Entry tax and octroi levied on goods will not be levied in GST.
3. With Slab wise rate structure, most of the goods will be taxed at nearest tax slab.
4. In case of goods where combined rate of excise duty and VAT (as mentioned by FM) is 30-31%, the effective rate under the current regime appears to be lesser than 28%. Hence, subjecting these goods in GST is likely to increase the prices of goods.
5. For goods that are classified under 5%, 12% and 18% slab rates, effective tax cost might be lesser as compared to current tax regime.

Also Read: Expert view: Key takeaways from the new GST rates
Impact on services
1. It is likely that all services will be taxed at standard rate of 18%.
2. Cascading of VAT, CST, entry tax, octroi and additional customs duty will not exist in GST regime. 3. Most of the services are likely to be costlier due to increase in tax rate. However, impact may not be as high as 3%x (from current service tax of 15%) if service providers pass on savings due to higher tax credits.

Compiled by EY