The GST input tax incurred by businesses is claimable as a credit if they make taxable supplies. This avoids the cascading tax effect of the current single-stage sales tax and service tax regime, which results in higher prices. Recognising the wide-ranging impact of GST, the Government has proposed an initial low rate of 4%, coupled with zero-rating and exemption of essential goods and services. Anti-profiteering legislation and other measures for qualifying persons in the lower-income groups may be introduced to alleviate the adverse impact of GST on consumers.
GST will not burden the community. For those currently consuming goods and services that are subject to service tax, the impact of GST should be neutral if the rate is 4%. In fact, consumers should benefit if the suppliers pass on the savings from their ability to claim back input tax on their purchases. Consumers should also be better off because some essential goods will be zero-rated, while certain items are exempted from GST.
A business can claim an input tax credit on purchases irrespective of whether it has paid the suppliers, as long as the suppliers have issued tax invoices to the business. There should be no adverse GST impact on a business that makes taxable supplies. In the long run, the cost of doing business will go down because the business will have the ability to claim input tax on the purchase of goods and services, which they cannot do under the service tax regime. Businesses will experience a cash flow impact.
They have to charge GST on sales and if the customers are late in paying, the businesses will have to pay the tax first. It is important to educate businesses, especially the small players, on the cost savings and potential cash flow savings aspects of GST. It is equally important to educate consumers so that they understand that the goods and services they buy may not necessarily be subject to a price increase because of GST. GST works on the affordability concept. As a consumer, you decide which goods and services to buy, and if these are subject to GST, you then have to pay it.
This is no different under the current service tax regime except that these taxes are embedded in the price of the goods and services, and the consumer may not realise that they, in fact, bear the taxes. GST actually works based on the affordability concept. You have to pay it if you buy food or services that fall into GST group. Actually, even now you are also paying for sales and service tax which are embedded in the price of goods and services and you may not realise about that. Anyway, hope our Government will introduce special measures to help lower-income groups to minimize the adverse impact of GST on them.