The upcoming new GST regime aims to correct inverted duty structures and prevent the pile-up of Input Tax Credit (ITC), which can lead to lower prices and better quality for consumers.
What is an Inverted Duty Structure?
An inverted duty structure happens when the tax rate on inputs (raw materials) is higher than the tax on the final product. This forces businesses to pay more tax on their purchases than they can collect on sales, leading to a surplus of ITC. This accumulation of tax credit blocks a company’s working capital, increases their costs, and ultimately, these costs are often passed on to you, the consumer, in the form of higher prices.
How Will You Benefit?
By correcting this imbalance, the government plans to align input and output tax rates. This will help businesses in two key ways:
- Improved Cash Flow: Businesses will no longer have their working capital tied up in unutilized tax credits.
- Lower Costs: Their overall tax burden will be reduced.
These savings are expected to be passed on to you, the consumer. The result could be:
- Lower Prices: Essential goods, and products in sectors like textiles and fertilizers, may become more affordable.
- Better Quality: With improved cash flow, companies can invest more in product innovation and quality.
- Reduced Hidden Taxes: The new system removes a hidden cost from the supply chain that you previously paid for.
In short, the new GST regime aims to simplify the tax system for businesses, leading to a more efficient market and tangible benefits for you.