GST and Its Impact on Food Personal Care Product Prices in India

Published On : 26 July, 2017

Goods and Services Tax (GST) is based on the concept of “one nation, one market, one tax.” It is basically an indirect tax which will dismantle all the inter-state barriers to trade in goods and services. GST rate is decided in such a way that it should be close to the current effective tax burden on various items so that the transition to the new indirect tax system is revenue neutral. There are 4 different slabs in GST – 5%, 12%, 18% and 28%, but most of the commodities fall in 12% and 18% slab.
Because of the lower rates of GST, may lead to a decline in inflation, but economic growth may not increase significantly in the short run even though it may benefit in the medium term. This new tax system may force many companies to redesign their operations. Now vendors and suppliers will furnish invoices for the firms as in GST it’s impossible for firms to evade taxes. There will be a simplified tax policy and less tax compliance as compared to current tax system. Also cascading effect of taxes i.e. tax on tax will be removed. Consumers will now only pay tax on the last value addition to the product in the supply chain. So overall there will be a boost to the Indian economy in the long run. But these are only possible if benefits of GST will be passed to the final consumer. GST will be easier to administer because of its transparency character and after its implementation this tax system holds a great promise of sustaining growth for the Indian economy.
If we consider the food and personal care products, GST’s impact is marginally towards the adverse side. Essential items including vegetable oil, cereals, tea and coffee have shown a decline in prices. Also, eating out earlier was expensive but after GST the prices have declined. However, daily usage products such as sugar, spices, ghee, and others have shown a marginal rise in price after implementation of GST. Prices of packaged foods have also gone up and now come under the 18% tax bracket. So, we can say that there is a marginal increase from 25-26% to 28% in food products.
Similarly, personal care products such as detergents, shampoo, body cream, perfumes, and others have shown a marginal rise in the prices as an impact of GST. As most of the fast moving consumer goods are manufactured in areas like Uttrakhand where government gives exemption on excise duty, therefore the prices of these products have increased marginally after GST.
So we can say that there is a decrease in prices of few products but there is also a marginal increase in prices of more products as an effect of GST on food and personal care products.

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