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What does GST hold for Indian youth?

The Financial Express logo The Financial Express 22-04-2017

By Rahul Garg

After a long wait we finally have the GST law ahead of us and broadly know what it would look like. The unified tax reform is set to increase nation?s GDP by 2% and enable India Inc to reach new heights. With July 2017 around the corner, businesses all over are figuring out how to be GST-compliant. In the midst of this hustle, I am keen to see how the transformative reform will go down with over 65% of our population, that is the youth below the age of 35 years.

How pocket-friendly will GST be for youngsters?

A 5-tier slab rate structure of 0, 5, 12, 18 and 28% has been agreed upon by the GST council, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

This means essential items, including food that till now constituted about 50% of the consumer inflation, will be taxed zero, thus keeping a check on inflation. All consumer-centric companies will stand to gain with respect to supply chain and logistics. Indirect tax rate for a range of consumer goods such as FMCG products, personal care, is likely to come down to 18% from the earlier 21%-22% on an average. This will lead to higher purchasing power among consumers. India?s youth, being the biggest chunk of this set of consumers, are going to gain from this change.

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With entertainment taxes becoming a part of GST, movie ticket, theatrical performances and dining out may also become more pocket friendly in most states.

The automobile sector, another industry that is primarily youth driven, is expected to be the biggest beneficiary of GST implementation. Currently, two-wheelers, small cars and commercial vehicles witness tax outgo of 27 percent. With the introduction of GST, a standard of 18% would be levied, resulting in a 9% reduction which could then be utilized in reducing vehicle prices and stimulate demand.

On the other hand, during the transition phase the youngsters should budget for some increased pocket pricking on telecom services like mobile and internet bills, and electronic products like smartphones, laptops and computers. Services like WiFi and DTH services, online booking of air travel may dearer too. Aligning with the government?s negative outlook towards ?de-merit goods?, tobacco, cigarettes, pan masala and aerated drinks shall witness the highest rate of 28% tax rate.

Though pre-primary and higher secondary education services will remain tax-free, higher education in private institutes may turn out to be costlier by about 3%, moving from the earlier service tax of 15% to the new GST slab of 18%. The benefits of such a move are debatable, as the reform is clearly skewed towards favoring government-provided education over private.

Growth in the job market

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GST implementation is expected to organize the unorganized players by bringing them into the tax ambit. This should reduce the price gap between organized and unorganized sector. There are about 3 crore MSMEs which provide employment opportunities to more than 90% of the youth. Though financial gain of this sector by GST is widely debated, the likelihood of this sector getting more organized is higher under GST. Employment in organized sector is going to be a better proposition for the youth than remaining employed in an unorganized sector.

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The proposed ?one tax, one market? concept would be a welcome step for online marketplaces. India?s booming e-commerce segment, which in turn has become the backbone of youth-led economy, will create jobs fastest with increase in demand, scale and profitability. It will bring ?ease-of-business? to the sector and further strengthen it by eventually eliminating unorganized players and sustaining only those who would be GST compliant. This will reduce malpractice of online market space significantly.

With Digital India and digital payment mechanism in the forefront and the youth turning to online marketplaces for all kinds of purchases, the sector was already at an upsurge and introduction of tax laws should further enhance its growth.

(The author is Founder & CEO, Moglix)

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