The design of GST itself will lead to substantial benefits accruing to end consumers. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous. Today due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to the transparency of taxes paid to the final consumer. Further, there will be relief in overall tax burden. This is because, under the GST regime, the entire supply chain will be efficiently leading to gains and prevention of leakages. This will result in the overall tax burden on most commodities to come down, which will benefit consumers.
However, a crucial aspect in determining the impact on the final price of goods and services is the GST rate. The indication is that most goods and services will be at taxed at a standard rate ranging from 17% to 19%.A common man incurs various expenses on day to day which are charged to indirect taxes. Purchase of goods has a standard excise duty of 12.5% embedded in it and the standard VAT of 14% appearing on the face of the invoice. The effective tax rate on goods is around 28% due to 'tax on tax' and no input tax credit available to the dealer of the excise duty charged by the manufacturer. Service tax is levied at 15% on the services consumed. So optically it seems that goods will become cheaper and services expensive should the rate of GST be a range of 17% to 19%. Small cars, FMCG products etc may become cheaper.
Hence, GST model would facilitate seamless credit across supply chains, with tax set-offs available across the production value-chain, both for goods and services. This will result in a reduction of cascading effect of taxes, therefore bringing down the overall cost of supplies. Currently, there are differential rates of VAT for the same goods in different States with further fragmentize of VAT rates and levy of entry tax in certain states. This has in the past resulted in classification disputes and entry tax litigations. However, with the abolition of entry tax in GST and given that GST rates at both the Central and State level are expected to be uniform and harmonized, the same is likely to bring down the disputes. The essence of GST is that all goods and services be taxed at a moderate rate. So, in the long run, it is expected that the burden of GST on common man will be reduced.