By DC Correspondent

Copyright deccanchronicle

Mumbai: The new Goods and Services Tax (GST) rates would result in a modest monthly tax savings ranging between Rs 58.72 to Rs 87.74 per person according to a report titled ‘Decoding the Journey of GST Reforms: GST and Its Effect on Economy, Business and Household Consumption’ jointly undertaken by FICCI Cascade and the Thought Arbitrage Research Institute (TARI). “Our findings highlight the absolute tax savings for higher fractile and urban population is more due to their higher consumption expenditure. The savings due to reduced GST incidence in GST 2.0 in comparison to GST 1.0 for the rural population is Rs 58.72, and for the urban population it is Rs 87.74,” said the report. The study took 368 taxable items from household monthly per capita expenditure (MPCE) data provided by NSSO 2022-23 household consumption expenditure survey (HCES). These were mapped to consumption items according to GST rates as per rates 34 notified by the GST council. Free/PDS/Subsidized items were not part of taxable MPCE. The government has announced lower GST rate from 12 per cent to 5 per cent on several top consumed items for rural and urban consumers. According to the report the number of items in the 5 per cent GST category will nearly triple from 54 to 149 in the new GST regime. The number of consumption line items falling under the standard 18 percent and special 40 per cent rates will significantly decrease. The new rates come into effect on September 22. The average MPCE by rural population as NSSO 2022-23 survey is Rs 3,738.44, out of which they spend Rs 2,105.43 on either exempted and 5 per cent rate items. The rural population spend primarily towards staple foods, health, education and other basic services and goods to fulfil their essential needs, which is more than 56 per cent of their total MPCE expenditure. For the rural population the consumption share of exempted/NIL and merit goods increases to 73.5 per cent (Rs 2,816.5) in comparison to 56.3 per cent (Rs 2,105.4) under GST 1.0. The consumption of standard rate (18 per cent) and special rate (40 per cent) decreases from 17.1 per cent in GST 1.0 to 12.4 per cent after the GST 2.0 reforms. The rural population experiences higher relief from GST incidence (rural 1.76 per cent which is 29.8 per cent of taxes saved as compared to the rates of GST 1.0, while for the urban it is 1.71 per cent, representing 26.7 per cent of tax savings). The tax burden on both rural and urban population is expected to be progressive, which increases as we move from the lower fractile to the top most fractile class said the study. Meanwhile, Crisil Insight in a report said that the tax cuts on essentials should improve purchasing power, especially for low-middle income segments. Additionally, for some categories, the GST rates have been pared for only lower-value items (e.g. clothing, footwear, two-wheelers). This complements the income-tax relief announced in the budget for this segment and will support demand. The final impact on consumption will depend on the degree to which producers pass the rate cuts to consumers. Global evidence confirms that passthrough of tax changes varies significantly across countries. Furthermore, the adjustment can take time. For India, we expect the impact of GST cuts on consumption to play out over this fiscal and the next.