How GST Affects the Indian Economy (5 Cases)

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How does GST reform affect the Indian economy? What is the reaction of the Indian business community? Featured below is a sampling of GST’s effects.

Effect on Consumer Goods and Services

When it comes to consumer goods and services, the main concerns are food and the services sector. For these, the GST brings good and not so good news.

The good news is that food products are charged 0%. The not so good news is that services in general are seeing an increase of 18% from 15%.

On the other hand, the implementation of GST increases the tax on footwear and garments priced at INR 500 from the previous 14.41% to 18% but those priced lower than INR 500 are taxed lower at 5%.

Effect on Transportation
Under GST, cab and taxi rides are taxed lower, from 6% to 5%. For those who who travel by air, GST is favorable as the tax rate is lowered to 5% for the economy class and 12% for business class.

Train fare, meanwhile, is mostly unaffected as the change is minimal, from 4.5% to 5%.

Those who travel by sleeper are not affected by the tax rate change but those who travel first class are charged more.

Effect on the Entertainment and Hospitality Industries
Amusement park rates increase with GST taking effect as the previous tax rate of 15% has been raised to 28%.

Movie tickets are similarly increasing as they are categorized under the 28% rate.

For hotels, no GST are to be charged for room rates priced lower than INR 1,000.

However, room rates higher than INR 5,000 get a 28% tax rate.

For 5-star hotel restaurants, the rate is 18% for those that serve alcohol and 12% for those that don’t.

Smaller hotels and restaurants are only charged 5% if their annual turnover does not exceed INR 50 Lakh.

Effect on Startups
The GST regime is believed to be good for the Indian startup sector as it carries with it tax credit on purchases, a simple compliance model, increased limits for registration, and the ability to promote the free flow of goods and services.

It takes away the complication and confusion of the previous VAT laws, especially for those in the ecommerce industry.

Effect on Economic Activity
It’s difficult and too early to evaluate whether or not GST has positively affected economic activity. 

The Indian government, however, believes that they are on the right track with GST.

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