On Ist July 2017 our everyday lives changed drastically. The GST- Goods & service tax was finally implemented and it made few items cheaper and a few others more expensive. So if you’re still wondering what this tax is all about, here’s a quick explainer.
1. They’re both ideal for makeovers
Nykaa for a beauty makeover and the GST for a tax makeover!
India’s indirect tax (any tax other than Income Tax) system changed completely after 1st July 2017 and is now replaced by the goods & service tax aka GST. This means all the previously imposed taxes like VAT, service tax, Krishi Kalyan Cess, Swachh Bharat Cess, excise duty etc. which differed in every state (depending on the ruling party) are substituted by a single uniform tax called the goods & service tax. Now your friend in Punjab and your friend in Gujarat will pay the same taxes as you do for movies, groceries and food. For instance movie tickets in Maharashtra were taxed at 45% and in Rajasthan at 0%. But after 1st July movie tickets in all states are taxed at a 28% GST rate.
GST also changed our tax system from origin based to destination based meaning taxes will apply only on using a product/service and not on producing it, kind of like cash on delivery. So, if a bag is produced in Maharashtra but used in Gujarat GST will be applied and collected by the Gujarat government. Thus, benefiting the state that consumes more.
This even works for international trade transactions. Under GST imports (goods/services we purchase from abroad) get taxed but exports (selling goods/services to other countries) don’t. So our country is encouraged to export more and import less.
2. They both have sections
Navigating for the perfect lipstick shade has become so much easier with Nykaa’s brands, prices and shades filters. Even someone who doesn’t apply makeup would be able to find their products on Nykaa easily. Similarly, thanks to GST I now know how much tax a product should attract and don’t end up paying my bill blindly.
India has 5 different rates- 0%, 5% 12%, 18%, and 28% for different kinds of products, so that the poor don’t end up paying too much for basic essentials or the rich don’t end up paying too little for luxury items. Learn these rates so the next time you go shopping you know exactly how much you can be taxed for an item.
A trip to the local baniya for day-to-day essentials like milk, eggs, butter, fruits and vegetables will be pocket-friendly because there is no GST on these items.
A trip to the supermarket for other household necessities such as frozen vegetables, coffee, tea, pizza bread etc. will attract a GST of 5% on your bills.
12% & 18%
But if your cart includes frozen meat, cheese, biscuits, sauces, and similar processed foods, your bill will attract a GST of either 12% or 18%.
And all luxury items such as aerated drinks, washing machines, cosmetics, tobacco products will be charged the highest GST rate of 28%.
Other, than any of these 5 rates you can’t be charged anything extra as ‘taxes’.
3. They both act as an umbrella
Nykaa has over 1000 brands all under one roof, not only does it have local brands but even international ones. Similarly, GST is an umbrella of all indirect taxes previously collected by the Central and State government.
Before GST the central government collected service tax, central excise duty, customs duty etc. and the state government collected entertainment tax, value-added tax (VAT), luxury tax etc. But now all these taxes fall under the GST ambit.
So who will collect and use this GST? Half of the GST will go to the state government (shown as SGST- State goods & service tax on a bill) and the other half will go to the central government (shown as CGST- Central goods and service tax on a bill). Pull out any recent restaurant bill to understand this better. The GST (5%) charged on it will be divided into SGST of 2.5% & CGST of 2.5%.
While SGST & CGST are charged on goods & services produced and used within a state, in case you use goods & services produced from another state your bill will have IGST -Integrated goods and service tax. IGST will be collected and levied by the central government, who’ll keep half of it and give the remaining half to the state which used the goods/service.
4. They both give refunds
When you return a product on Nykaa you get a refund for it directly into your account, GST gives your business a tax refund known as Input Tax Credit if your business has paid taxes twice.
In the previous tax system a seller would end up paying double tax on a single product/service, once while purchasing the materials required for it and again while selling the final product.
The goods & service tax has resolved this problem. Look at this example to understand this better.
Tina buys satin for Rs.1180 (including of taxes at 18% on Rs.1000) and produces a dress out of it. She sells the dress for Rs.2000 (including taxes at 18% = Rs.360 on Rs.2000). Here Tina has paid the government taxes twice once for the silk (Rs.180) and second for the dress (Rs.360). Under GST Tina can claim the tax paid once (Rs.180) from the government. Since Tina is getting a refund of her taxes she can reduce the overall price of her dress and pass on the benefit to her customer. That’s how GST has helped in bringing down the prices of many products and services. This is also known as taxing only the value additions of a product.
5. They both exclude certain products
Just how Nykaa doesn’t sell clothes, food or gadgets as yet, alcoholic and petroleum products aren’t taxed under the GST system.
Since these make up 25%-33% of the government’s revenue, for the time being, they’re taxed at the same rate as before to ensure a minimum guaranteed income to the government. But in the future when GST stabilizes in our country these products might come under GST.
Phew! I’m sure your cart is full of GST jargon and you might want to check out. But before you do, hit like and comment below for any GST related queries.