how gst affects poor people
Answers
Answered by
1
GST is an indirect tax that is finally recovered from consumers of goods and services, in the form of increase in sales price.
Thus every consumer be he/she is rich or middle class or poor pays same amount of GST for one unit of any product or service he buys in the market.
Though absolute amount of GST paid by each of these three categories of consumers remains same per unit of a product they buy, relative burden of tax amount vastly differs among them. Thus Rs. 10 of GST paid in one unit of a product by a poor person having monthly income of Rs. 1000, will be 1% of his income, whereas same amount paid by rich person having monthly income of Rs. 1 Lakh, will be just 0.01% of his income. Relative burden of any indirect tax is therefore higher for poor in comparison with rich, and case with GST is no different.
GST like any other indirect tax is therefore a socially regressive type of tax. Compare this with income tax where tax rates increase with slabs of income so that rich people end up paying higher percentage of tax on their incomes as compared with middle class and poor people. That’s why all direct taxes are considered to progressive from social point of view.
Given socially regressive nature of indirect taxes, what Government can do to mitigate relative burden of these taxes on poor is to keep rates of indirect taxes nil or low on essential goods and services, so that poor do not suffer because of the taxes on such items where large proportions of their incomes are spent. Loss of revenue due to this is sought to be compensated by taxing luxury goods at very high percentage, taxes on which are mostly paid by rich people.
This is exactly what is done by the Government for GST, where care has been taken to ensure that most of the items going into the basket of household consumption and thereby into Consumer Price Index, are either exempted from GST or the rates are kept lower than current rates of taxes on these items.
So from price effect point of view, GST should bring down prices of goods and services consumed by poor and GST may prove to be beneficial to them for improvement in their standard of living.
However more than effect on prices, for judging efficiency of any indirect tax, what should be measured is extent to which this tax helps government objectives of Jobs and GDP growth in the long term. Because it is this that is finally going to matter all classes of people in the long term.
On this test, GST again is a winner because, with merging of 17 different kind of taxes and multiple tax laws for some of these taxes according to each State, an environment of One Nation One Tax has been created, which is expected to give significant push to Ease of Doing Business and Make in India initiatives of the Government which will finally offer benefits to poor, middle class and rich people in terms of economic well being.
That said there is a word of caution. GST law as has been made at present suffers from serious weaknesses and complicates compliance to such an extent that fears are looming large for Inspector Raj to make come back to business.
This needs to be sorted out on priority if such a big reform is not to be allowed to get wasted.
Thus every consumer be he/she is rich or middle class or poor pays same amount of GST for one unit of any product or service he buys in the market.
Though absolute amount of GST paid by each of these three categories of consumers remains same per unit of a product they buy, relative burden of tax amount vastly differs among them. Thus Rs. 10 of GST paid in one unit of a product by a poor person having monthly income of Rs. 1000, will be 1% of his income, whereas same amount paid by rich person having monthly income of Rs. 1 Lakh, will be just 0.01% of his income. Relative burden of any indirect tax is therefore higher for poor in comparison with rich, and case with GST is no different.
GST like any other indirect tax is therefore a socially regressive type of tax. Compare this with income tax where tax rates increase with slabs of income so that rich people end up paying higher percentage of tax on their incomes as compared with middle class and poor people. That’s why all direct taxes are considered to progressive from social point of view.
Given socially regressive nature of indirect taxes, what Government can do to mitigate relative burden of these taxes on poor is to keep rates of indirect taxes nil or low on essential goods and services, so that poor do not suffer because of the taxes on such items where large proportions of their incomes are spent. Loss of revenue due to this is sought to be compensated by taxing luxury goods at very high percentage, taxes on which are mostly paid by rich people.
This is exactly what is done by the Government for GST, where care has been taken to ensure that most of the items going into the basket of household consumption and thereby into Consumer Price Index, are either exempted from GST or the rates are kept lower than current rates of taxes on these items.
So from price effect point of view, GST should bring down prices of goods and services consumed by poor and GST may prove to be beneficial to them for improvement in their standard of living.
However more than effect on prices, for judging efficiency of any indirect tax, what should be measured is extent to which this tax helps government objectives of Jobs and GDP growth in the long term. Because it is this that is finally going to matter all classes of people in the long term.
On this test, GST again is a winner because, with merging of 17 different kind of taxes and multiple tax laws for some of these taxes according to each State, an environment of One Nation One Tax has been created, which is expected to give significant push to Ease of Doing Business and Make in India initiatives of the Government which will finally offer benefits to poor, middle class and rich people in terms of economic well being.
That said there is a word of caution. GST law as has been made at present suffers from serious weaknesses and complicates compliance to such an extent that fears are looming large for Inspector Raj to make come back to business.
This needs to be sorted out on priority if such a big reform is not to be allowed to get wasted.
Similar questions