GST to bring the commodity prices down - A realistic expectation or a fantasy

The public is given to understand that the GST shall bring down the Cost of Production and so the prices of the commodities shall come down due to elimination of cascading effect of taxes and to ensure that the lower cost of production is passed on to the consumers the CGST included Anti-profiteering provision.

After the implementation of CENVAT for Central taxes on import, production and services & VAT in lieu of State Sales tax the Cascading effect of taxes has already been eliminated so far consumption of the goods remains within the State of production as mention in Exhibit -1. This also exhibits that the final price to the consumers within the State shall increase.

The manufacturers, e.g. Cement, FMCG, Textile etc., selling their products PAN India or in multiple States, have opened Depots in every State to save CST on inter-state transfer of goods. The case of sales from Depots where no CST was paid is the same as that of Goods manufactured and sold within the State (Exhibit 1). It is worth mentioning that goods brought in to the State for resale are exempted from entry tax in most of the States.

The exhibit 2 makes it clear that even in case of interstate trade where no input credit of CST is available to the importing trader, the price to the consume shall increase.

The only case where price will decrease after GST is that of commodities or the situation, in course of interstate trade, where entry tax which is normally @3% is also liable as explained in Exhibit 3.

The 18% rate of GST taken is based on an imaginary product where presently excise duty applicable is 12.50% and VAT @5%. The Consumer price is based on the presumption that the manufacturer sells his goods directly to the retailers and the manufacturer and the retailer shall not be willing to reduce their Gross profit in absolute term. The Input credit of Service tax paid is already available to manufacturer and it is presumed the eligibility of Input credit on Services now to the retailer shall not make a major impact on the cost of purchase.

It may be noted that the goods sold in retail market are at 3 to 5 times of the Cost to a manufacturer and from the above illustrations it can be observed that the price to the consumer shall increase with increase in gross margin of the retailer or the other intermediaries such as Distributers, whole sellers, commission agents etc. In other word the Consumer will be made to cough up more taxes in GST regime.