Assessing The Impact Of GST On Consumer Behaviour In India - The Legal And Sociological Perspectives
Author: LawSphereX
Category: Taxation
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ASSESSING THE IMPACT OF GST ON CONSUMER
BEHAVIOUR IN INDIA: THE LEGAL AND SOCIOLOGICAL
PERSPECTIVES
Nilotpal Chatterjee, Assistant Professor, George School of Law “GST a disruptive change and tribute to India’s democracy”. - Pranab Mukherjee
ABSTRACT
On July 1, 2017, India enacted the Goods and Services Tax (GST), which drastically changed the country’s indirect tax structure. This change has significant implications for both customers and businessmen. The Goods and Services Tax has had a considerable impact on consumer behaviour, ranging from customer’s consumption habits to purchasing decisions, which are generally influenced by their purchasing power. The purchasing power of the customers are also affected by the taxes imposed on them, which often limit the purchasing power of the customers. Thus, in such conditions, a rational consumer designs his or her shopping behaviour in such a way that the resources available with him are utilised in the best possible way, resulting in the maximum benefits at lower costs.
The primary objective of this research is to determine the impact of the introduction of GST on the purchasing decisions, consumption patterns and overall consumption habits of Indian consumers. It also aims to evaluate their level of awareness and understanding of GST among Indian consumers as well as their views regarding the fairness and transparency of the indirect tax system of India. By examining the relevant aspects, this research seeks to provide valuable insights into the effectiveness of GST as a policy measure and its implications for consumer rights and protection. This research paper is an original study based on empirical data obtained by the researcher through primary means. The implementation of GST has had a significant impact on the economic development of various sectors of the country.
Hence, this study helps to identify the awareness level and acceptance level of GST from the perspective of the consumer. Keywords: Goods and Services Tax, Consumer behaviour, Indirect Tax, Purchasing Decision and Spending ability, Respondents
Introduction Prime Minister of India, Sri Narendra Modi, described the Goods and Services Tax (GST) as a “Great Step by Team India,” a “Great Step Towards Transformation,” as well as a “Great Step Towards Transparency. ”1 The Government of India is currently taking significant initiatives to increase the overall economic growth of the country. Based on a uniform taxation system in the country, GST is expected to not only transform the Indian economy into a common market but also increase the ease of business activities in India. The concept of GST in India was first proposed by the Kelkar Task Force on Indirect Taxes in 2000, whose objective was to replace the complex and fragmented tax structure of that time with a unified system that could facilitate compliance, reduce tax cascading and promote economic development.
Aims and Objectives of the study The primary objectives of this research paper are as follows:
1. To analyse the fundamental concept of Goods and Services Tax Act and its
implementation in India.
2. To examine the advantages and disadvantages of GST.
3. To examine the role of GST in simplifying the tax structure in India.
4. To analyse the impact of GST on purchasing behaviour of the consumers.
5. To determine the troubles encountered by the consumers.
6. To recognise the consumer awareness and perception towards GST.
1 PM in Lok Sabha: GST is a Great Step by Team India, Great Step Towards Transformation, Prime Minister of India, https://www.pmindia.gov.in/en/news_updates/pm-in-lok-sabha-gst-is-a-great-step-by-team-india-greatstep-towards-transformation/ (last visited Oct. 06, 2024).
7. To provide recommendations for enhancement of consumer benefits under the GST
regime. Research Methodology This research paper is analytical as well as empirical in nature, and has been prepared by means of analysis of primary and secondary data. The researcher has adopted the empirical method of research by means of which, the researcher aims to collect and generalize the information from a variety of respondents. The primary data had been collected from 36 respondents through a questionnaire. The secondary data have been collected from online and offline journals, articles, books, magazines, websites etc. What is Goods and Services Tax (GST) “It is a destination-based tax on consumption of goods and services. It is to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.
The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply. ”2 Salient Features of GST The Goods and Services Tax is a comprehensive indirect tax which is imposed on the supply of goods and services in India. Some of the most notable features of GST are as follows:
1. One Nation, One Tax: The GST has replaced several indirect taxes levied by the Central
and State governments, such as service tax, excise duty, Value Added Tax (VAT) and others. It eliminated the tax cascade effect and introduced uniformity to India’s tax system.
2. Dual Structure: GST operates under a dual structure, consisting of Central and State
GST, levied by the Central and State governments, respectively. In case of inter-state transactions, Integrated GST (IGST) applies, which is collected by the Central Government and distributed to the respective states. Import of goods or services will be 2 Goods & Service Tax, CBIC, Government of India :: Know about GST. Available at: https://cbicgst.gov.in/about-gst.html (Accessed: 08 October 2024).
treated as inter-state supply and will be subject to IGST in addition to applicable customs duty.
3. Input Tax Credit (ITC): GST allows for the use of input tax credits, where businesses
can claim credit for taxes paid on inputs used in the production or provision of goods and services. This reduces the total tax liability and helps prevent double taxation.
4. Destination-based Tax: GST is a destination-based tax that is applied to every
transaction in the supply chain, from the producer to the final customer. It is implemented at every stage of value addition, allowing seamless flow of credits and reducing the tax burden on the end customer.
5. Online Compliance: To facilitate registration, return filing, tax payment and other
compliance-related tasks, GST has established an online site Goods and Services Tax Network (GSTN). It has simplified the procedure and made it simpler for taxpayers to carry out their duties.
6. Increased Compliance and Transparency: The main aim of GST is to increase tax
compliance by bringing more businesses into the formal economy. The transparent nature of the tax system with digitization of processes and electronic records helps in curbing tax evasion and enhancing transparency. Centre and State taxes subsumed under GST3 At the Central level, the following taxes are being subsumed: (a) Central Excise Duty, (b) Additional Excise Duty, (c) Service Tax, (d) Additional Customs Duty commonly known as Countervailing Duty, and 3 FAQs on goods and services tax (GST). Available at: https://mib.gov.in/sites/default/files/GST_FAQ_0.pdf (Accessed: 11 October 2024).
(e) Special Additional Duty of Customs. At the State level, the following taxes are being subsumed: (a) Subsuming of State Value Added Tax / Sales Tax, (b) Entertainment Tax, (c) Octroi and Entry Tax, (d) Luxury Tax, and (e) Taxes on lottery, betting and gambling. Advantages of GST
1. It follows the principle of “One Nation: One Tax”.
2. The most important benefit of GST is the removal of cascading effect, i.e. removal of
tax upon tax.
3. It is an online procedure from registration to filing returns and making GST tax
payments.
4. Provides higher threshold for registration.
5. Provides composition scheme for small businesses and aims to reduce the compliance
burden enabling small businesses to focus more on business.
6. Increases ease of doing business.
7. GST contributes to increasing production and exports, creating employment and
strengthening the Indian economy.
8. GST streamlines the process for taxpayers by replacing multiple tax terms with a single
return. The former system, which had different requirements for different taxes, was radically changed from this.
Disadvantages of GST
1. The GST structure is a complicated and difficult to understand process to properly
utilise the expected benefits.
2. GST has 5 tax slab rates of 0%, 5%, 12%, 18% and 28%.
3. Different tax rates and complexities increases chances of tax disputes and corruption.
4. There are misunderstandings about product classification and different rates,
5. The food industry has requested a simpler system and objected to higher taxes on
produce with added value.
6. Excluding certain items from this regime, such as alcohol, real estate, electricity, defeats
the purpose of a single tax.
7. Hiring professionals for GST complaints increases the running costs of the business.
Components of GST GST is levied simultaneously on a common basis by both the Central and State Governments. Dual GST can be classified as follows: Central GST (CGST) – GST will be levied by the Central Government. State GST (SGST) / Union Territory GST (UTGST) – GST will be levied by States / Union Territories. Integrated GST (IGST) – GST levied by the Central Government on inter-state supply of goods and services. Concept of Consumer Behaviour Consumer behaviour involves “all activities associated with the purchase, use and disposal of goods and services, including the consumer’s emotional, mental and behavioural responses that
precede or follow these activities. ”4 The term ‘consumer’ can apply to individual consumers as well as organizational consumers, and in particular, “an end user, and not necessarily a purchaser, in the distribution chain of a good or service. ” Consumer behaviour is concerned with:5 • Purchasing activities: It analyses how consumers acquire products and services. It also describes all activities that lead to a purchase decision, including information search, evaluation of product and services, and payment methods including the purchase experience. • Consumption activities: This concerns the consumer, the location and time of consumption, as well as their experiences. It also includes the symbolic associations and distribution of goods within households or other consumption units. • Disposal activities: It concerns the method of disposal of products and packaging.
This section also includes resale activities such as eBay or other second-hand markets. Socio-Economic Impact of GST on Consumers in India
1. Uniform Tax System: GST has replaced multiple indirect taxes, simplified the tax
structure and ensured uniformity across countries, influencing consumer purchasing behaviour.
2. Price Changes: The implementation of GST has resulted in both decrease and increase
in prices of various goods and services, affecting consumer purchasing power and spending.
3. Impact on low-income groups: GST on essential goods have been kept reasonably low.
However, indirect taxes still affect low-income consumers, affecting their overall spending.
4 Consumer behaviour (2024) Wikipedia. Available at:
https://en.wikipedia.org/wiki/Consumer_behaviour#:~:text=Understanding%20purchase%20and%20consumpti on%20behaviour,Consumers%20are%20active%20decision%2Dmakers. (Accessed: 11S October 2024).
5 Ibid
4. Changes in Consumption Patterns: Consumers have shifted their consumption based on
the tax slabs prescribed for different products, causing a change in preference to goods with lower GST.
5. Impact on luxury goods: High tax rates on luxury goods have made them less accessible
to the average consumers, negatively affecting their demand.
6. Digitization of the economy: GST promotes digital transactions and compliance,
thereby increasing transparency but also affecting consumers unfamiliar with digital payment systems. Data Analysis and Interpretation Empirical research had been conducted among various consumers to identify their awareness of the concept and impact of the Goods and Services Tax. The primary data regarding this research paper has been collected through the methodology of questionnaire-based survey in which 36 responses have been analysed to do this research. The questionnaire has been divided into five sections which provide valuable insights regarding the respondents themselves, their understanding of GST, impact of GST on their behaviour, their legal awareness and consumer protection as well as their general perceptions of GST as a whole, respectively.
1. Demographic Information
This section collects information about the respondents’ age, gender, educational qualifications, their monthly income, which is reported below: (a) In terms of age, out of 36 respondents, 13.9% are between the age of 18 to 25, 44.4% are between 26 and 35, 22.2% are between 36 and 45, 11.1% are between 46 and 60 and the remaining i.e. 8.3% respondents are above 60 years old. (b) In terms of gender, out of 36 respondents, 52.8% are male and 47.2% are female. (c) In terms of educational qualification, out of 36 respondents, 8.3% are under Graduate, 13.9% are Graduate, 58.3% are Post Graduate and 19.4% are Doctorate. (d) In terms of occupation, out of 36 respondents, 19.4% are students, 36.1% are
employed in private sector, 22.2% are from public sector, 13.9% are self-employed,
2.8 are unemployed and remaining 5.6% are retired.
(e) In terms of monthly income, out of 36 respondents, 38.9% of the respondents have a monthly income below ₹ 20,000, 27.8% of the respondents have an income between ₹ 20,001 and ₹ 50,000, 19.4% of the respondents have monthly income between ₹ 50,001 and ₹ 1,00,000, 8.3% of the respondents have monthly income between ₹ 1,00,001 and ₹ 2,00,000 and 5.6% of the respondents have monthly income above ₹ 2,00,001.
2. Awareness and understanding of GST
The above figure shows that 38.9% of all respondents are very familiar with GST, 47.2% are somewhat familiar and remaining 13.9% are not very familiar with GST.
The above figure shows that 8.3% respondents have excellent understanding about the GST rate, 33.3% respondents have good understanding, 44.4% have fair understanding and 13.9% have poor understanding. The above diagram shows that GST system is very easy to understand for 8.3% respondents, 47.2% say it is somewhat easy to understand and it is difficult to understand for 44.4% respondents. The above diagram shows that 11.1% respondents strongly agreed, 33.3% agreed, 27.8% remained neutral and 27.8% disagreed that Goods and Services Act has simplified the tax structure in India.
3. Impact of GST on Consumer Behaviour
The above figure shows that 44.4% respondents said that GST implementation has affected their purchasing decisions, 38.9% said somewhat effected and 16.7% said no effect. The above figure shows that 25% have shifted to cheaper alternative products, 11.1% have reduced their overall consumption,30.6% have focused only on necessity products, 13.9% have been attracted towards online shopping and 19.4% respondents said there was no change,
The above figure shows that 88.9% of the respondents said that GST implantation has resulted in an increase in price and 11.1% said that there has been no significant change in price. The above figure shows that due to the change in GST rate of a specific products, 47.2% of the respondents have changed their spending habits, 27% of the respondents have no changed, and 25% of the respondents could not say correctly about this.
Regarding the fair and transparency of GST regime, the above chart shows that 22.2% respondents said ‘Yes’, 50% said ‘No’ and 27.8% respondents said ‘Unsure’. Regarding the increased in prices of goods due to GST, 41.7% of the respondents said prices of essential commodities increased, 19.4% said prices of luxury goods increased, 36.1% said prices of services increased and 2.8% said prices of other goods increased.
4. Legal Awareness and Consumer Protection
When asked how aware they are about the rate of GST, 25% respondents said they are fully aware, 66.7% respondents said they are somewhat aware and 8.3% respondents are not at all aware. The above figure shows that 31.4% respondents are fully aware about their rights, 48.6% are somewhat aware and 20% respondents are not aware about their rights.
In response to the question whether they faced any problem regarding GST charges, 33.3% respondents said ‘Yes’ and 66.6% respondents said ‘No’.
5. General Perceptions of GST
On the question of satisfaction regarding GST, 5.6% respondents said they are very satisfied, 25% said somewhat satisfied, 25% remained neutral, 36.1% remained somewhat dissatisfied and 8.3% said very dissatisfied.
Regarding the impact of GST on the economy, 44.4% respondents said positive impact, 38.9% said negative impact, 2.8% said no impact and 13.9% expressed doubt. From the above chart, it can be seen that, 75% of all 36 respondents in favour of the reforms of current GST system, 22.2% said it should remain as it is and 2.8% said nothing. Findings From the questionnaire which has been used to collect the primary data; the following findings can be obtained by analysing the data:
1. The research shows that only 38.9% of the respondents are very familiar with the GST
system, so it can be said that a large portion is still not familiar with the GST system.
2. Only 8.3% of the respondents can correctly understand the GST rate applicable for the
purchase of regular goods.
3. Only 8.3% respondents said it is very easy to understand GST system. As a result, a
large part is still in the dark.
4. Only 11.1% respondents agreed with the question whether India’s tax structure has
really been simplified by the introduction of GST.
5. Research shows that 44.4% of the respondents said that GST implementation is
influencing their purchasing decision. 25% of respondents have shifted towards cheaper alternatives.
6. The research also shows that, according to 88.9% of all 36 responses, the prices of
goods have increased after the introduction of GST.
7. The research shows that 47.2% of the respondents have altered their spending habits
due to the change in GST rate on a specific product.
8. Only 22.2% of the respondents felt that the pricing under the GST regime is fair and
transparent. Here it appears that there is also a doubt for the majority of people.
9. 41.7% respondent felt that the price of essential commodities has increase due to the
introduction of GST.
10. The research shows that 31.4% of the respondents are aware of their rights, while 68.6%
are still not aware. It also appears that only 25% are fully aware of GST rates.
11. The research shows that only 5.6% of the respondents are very satisfied with the GST
system. And 44.4% of the respondents think that GST is having a positive effect on the India’s economy.
12. From this research it is also seen that 75% of the respondents prefer the reform of the
current GST system.
Conclusions and Suggestions In conclusion, the Goods and Service Tax (GST) has brought greater uniformity and transparency in the Indian tax system, However, its impact on consumer behaviour is complex, encompassing both positive and negative consequences. The GST regime also encouraged digital transactions, which has further influenced consumer behaviour. In the long term, the impact of GST on consumer behaviour will continue to evolve as consumers and businesses adapt to the system, but the overall effect is making consumption choices more strategic and price-driven. Going forward, as the system matures and the government improves its process and methodology of implementation, the effects on consumer behaviour are expected to stabilize contributing to a more predictable and equitable market environment in the near future.
At the end of the research paper, the following suggestions can be given:
1. To simplify the GST system to reduce confusion and increase more transparency for
consumers.
2. To enhance awareness campaigns to educate consumers about the benefits of GST
system.
3. To encourage digital literacy to help consumers understand GST’s role in e-commerce
pricing.
4. To improve the processes for handling complaints and tax reforms for a better customer
experience.
5. To increase clarity on GST slabs to avoid price inflation for end consumers.
6. To strengthen monitoring mechanisms to prevent undue profiteering by businesses.
7. To encourage consumer participation in policy discussion on GST reforms.
8. To promote greater collaboration between government and business for transparent
GST compliance.