GST (Goods and Services Tax) was rolled out for making tax collection process seamless and uniform. In essence, you can consider GST as a pro-poor policy initiative with various exemptions aimed at making lives of the poor better.
To understand the impact of GST on the lives of poor folks, you need to analytically examine its role in various service delivery mechanisms affecting the impoverished.
This post sheds light on the primary service frontiers which have been favourably impacted by GST.
Impact On Public Distribution System (PDS)
During the VAT regime, sales or purchase tax was levied on essential food items such as wheat and rice, albeit at a lower rate, on either input or output.
Under GST, all such taxes have been removed. Basic food items distributed through PDS have been exempted from GST. Tax is limited to agricultural inputs which don’t affect the food items offered at highly subsidised rates through PDS.
You may appreciate the fact that expenses on food items constitute a significant portion of the overall expenditure of the poor. GST shall continue to ensure that no one dies due to hunger in this hugely populated country.
Impact On Healthcare And Education
Full GST exemption has been granted to services comprising of basic healthcare and elementary learning. Poor people are now capable of availing these services at a comparatively cheaper rate.
You may be aware of various health schemes run by the government, which allows people of economically weaker strata to avail of advanced healthcare almost free. No additional tax burden or gst registration fees shall ever be levied on such services.
Impact On Housing
The cost of owning a constructed house often gives poor people nightmares. For rationalising costs, real estate transactions have been included within GST’s purview.
Therefore, the tax you pay on the constructed house will be offset by input related taxes (inclusive of land) payable by a registered builder. As the burden of embedded taxes decreases, the poor can now afford livable houses.
Impact On Clothing
Clothing is an important consumption item for the poverty-stricken masses. GST has resulted in a significant decline in the prices of cloth materials. An analytical study conducted by ‘The National Council of Applied Economic Research (NCAER)’ suggests that the prices of cotton textiles have come down by 6.44% post-GST.
Similarly, the cost of synthetic fibre, silk and woollen textiles has dropped by 11.4%. Other clothing products and apparels’ prices have declined by 17.45%. Poor people stand to benefit from such sharp downward price movements.
Impact On Income
You cannot think of GST as advantageous for the economy unless it serves to increase the income potential of the poor. GST has positively affected the Indian poor by empowering them monetarily. You can segment the poverty-stricken people into rural and urban poor.
Effect On Rural Poor
Rural poor refers to marginalised and small farmers as well as landless farm workers.
GST has streamlined the agricultural supply chain and rapid transit of perishable farm products. As such, food wastage has declined, and farm products’ demand has grown. With easier inter-state good transportation, profit margin of farmers has increased.
Minimal dependence on intermediaries has resulted in passing off the benefits to labourers in the form of higher minimum wages.
Most of the farm inputs like fertilisers, seeds, pesticides etc. have been exempted from GST, lowering the input costs for farming. As a result, the transition to non-complex tax regime allows smaller farmers to take home more income.
Effect On Urban Poor
Comprehensive and transparent input tax set-offs have lessened the burden of additional taxation on manufacturers, retailers and other employers.
An estimate suggests that overall costs incurred by the manufacturing segment have declined by 1.22-2.53%. Thus, GST has paved the way for more employment opportunities for the urban poor, particularly in unskilled and semi-skilled segments.
The public distribution system ensures that food security for the poverty-stricken remains assured. Consequently, income levels of poor masses are set to increase considerably.
Conclusion
After the implementation of goods and service tax, India has witnessed an increase in economic activities largely thanks to the elimination of indirect taxes and the cascading impact of taxation.
Clearly, GST’s overall impact on the poorer strata has been positive. Gradually, GST will help our economy flourish, which shall pave the way for a reduction in poverty.
