Four tax slabs were announced yesterday as part of GST: 5%, 12%, 18% and 28%, which is more or less what experts had been predicting all along. There is a fifth slab being worked out for sin goods--luxury cars, alcoholic beverages, etc--which is likely to be way above 28%. Most white goods, read electronic items, consumed by the middle class are likely to be placed in the 28% slab, which is slightly higher than the 25-26% that was being deliberated by most experts. So, this is also the slab where most IT products and services are likely to be placed. The list is not out yet as to what products and services from the IT domain are likely to be placed within this slab.
Greater input tax credit equals lower product costs
This is the founding premise behind GST. The incentive in receiving greater input tax credit and hence reducing tax rates at subsequent stages is likely to result in more and more people conducting sales transparently and with the online tracking mechanism, people are less likely to hide products and their subsequent sales. Moreover if you look at the overall picture, the tax rate at 28% is still likely to result in lower selling prices if you add up taxes at all stages of an IT product lifecycle under the existing tax regime, which are between 30-40%. This, alongwith the facility to deduct tax paid at a previous stage is likely to result in a more transparent economy and more products and services being covered by the tax net. So, from the current more tax and less products regime we should move to a less tax and more products scenario.