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Get into a DIY regime to offset first year GST hiccups

By Rishi Kohli
In Economy
September 12, 2016
0 Comments
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taxationThe Goods and Services Tax (GST) Amendment Bill, which was passed by the Rajya Sabha on August 3, is  by far the most potent tax reform in India which will see the light of day, almost 25 years after the process of economic liberalization initiated in 1991. It seeks to impose one uniform tax on goods and services bought and is destination based, i.e. it will be imposed when consumers like us buy goods and services. The present taxation system is more production based and the GST essentially  modifies that to being consumption based. But how does that change our day to day life is what must be going through everybody’s mind?

To begin with let us prepare ourselves for the reality that the cost of all services that we avail today as an integral part of our daily lives, is sure to go up. Experts have suggested a GST rate between 18-22 per cent. Even assuming the lower end of the band being implemented and given that the present tax rate on Services is 15 per cent, all services like eating out, buying travel tickets, watching movies, legal services, chartered accountant  services, banking and financial services, insurance, transportation and logistics, dry cleaning services, gym or salon services- all are likely to get dearer. The counter argument is that given that we consumers pay anything between 25-26 per cent taxes on manufactured consumer goods like cars, batteries, mobile phones, day to day hardware and other consumer electronics items and the GST will help in bringing down their prices, any spikes in household budgets will therefore be balanced out.

That logic is likely to sustain in the medium to long term, when the base effect wanes and producers see benefits from reduced logistics cost flow and reduced inflation. In the first year of GST however, there is likely to be inflationary pressures which you will have to deal with arising out of increased working capital requirement by industries due to increase in rate of service tax on advertisement services, information technology services, security or manpower services etc. which will likely be passed on to the consumer.

taxation1To offset such woes in the first year, it might be advisable to accelerate the inculcation of a Do-itYourself or DIY regime into your and  your  family’s day to day life. DIY is already a rage in large parts of the globe and has had great salience in India as well in recent times. So if washing machines are likely to get cheaper, it is time to you got into the habit of planning your week with time kept aside for washing your own clothes, if you have not done so already (yes, it is still not common even in urban Indian households). Or get the romance back into cooking a meal together as a family for entertainment, instead of going to eat out at the drop of the proverbial hat. DIY kits are also available today and are quite easy to use and convenient as well, to do your own grooming at home instead of your weekly date with the salon.

Of course, this does not mean that the occasional pampering at the salon is not allowed, but if planned and spaced out, it will do a lot to help you garner benefits of the GST to its fullest. Another example of a subtle change in lifestyle could be bringing the family long drive back into your weekly ‘must dos’ over the movie, given car prices are also likely to come down in the long term and petrol and diesel will remain untouched by GST. Yes, GST is a revolution. Not only does it have the ability to fundamentally change our tax system, but it is sure to change for the better, our lives as well in the long term.

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