GST: What could get cheaper and costlier

Rajya Sabha uninaimously passed Goods and Services Tax (GST) bill on Wednesday. Dubbed as the biggest tax reform after independence, GST will remove several tax barriers for transfer of goods and services between states.

The roll out of GST will begin from April 1, 2017. It is expected to add around 2 percentage points to India's GDP.

Most manufactured goods are expected to turn cheaper while services will become more expensive with the introduction of the new goods and services tax (GST) regime.

For manufactured consumer goods, the current tax regime means the consumer pays approximately 25-26% more than the cost of production due to excise duty and value added tax. With the GST rate expected at 18%, most goods are expected to become cheaper.

• Prices of cars, two-wheelers, SUVs may drop.
• Movie ticket prices may come down due to lower entertainment tax
• Electronics items like fans, lighting, water heaters, air coolers, etc. could get cheaper

The effective service tax rate at present is 15% and it applies to almost all services other than essential ones such as ambulance services, cultural activities, certain pilgrimages and sports events. If GST is implemented, this rate will increase to 18% making services more expensive. Consequently, eating out, staying at hotels and air travel will turn costlier. Similarly, insurance premiums and investment management which attract a service tax currently, will also become costlier with the higher rate of GST.

According to an HSBC Global Research report services would see a rise in tax rates while manufactured consumer goods may see a fall. The two are likely to offset each other resulting in a limited net impact on inflation based on the consumer price index.

• Hotel and restaurants may become dearer
• Your mobile phone calls may get costlier as service tax will go up
• Airline, train tickets may become more costlier due to increase in service tax