Why GST rate cut had no impact?

People comparing new & old bills from food outlets like McDonalds and Sangeetha veg restaurants in social media claiming they increased the prices of menu items since GST has been reduced. Let’s analyze what made them increase the price.

Marginal Revolution, changed the way of pricing since 1900

Before 1900, business people used to fix the price which they incurred during the production of goods with little additional pricing as profit. They took profits, not a greater number. This is not the case now. After 1900, they started fixing prices based on how much the consumer can bear. Consumer demand that eventually determines prices. They try to charge the highest price which consumer will be ready to pay if stated in simple words. So no surprise that business doesn’t care to lower prices when their costs fall, just the way consumers don’t care to pay more when business cost rise.

So GST rate cut has no benefits for consumers?

It definitely has. When tax is reduced, it encourages business to invest more in the product as they earn more profits. This leads to increase in the supply of product on market – leads to lower prices for consumers, but it takes time. But creating bodies like NAA (National Anti-Profiteering Authority) by the centre to check on huge profits by business, killing the incentive to invest in manufacturing of goods for business will only have counterproductive results.

Closing with my view

Creating NAA will definitely have an impact and help consumers but one should also think about the pricing we are paying for. If people are ready to pay when there is an increase in price from what they can afford, it encourages market and gives a different pricing to that product, badly affecting other people’s who can’t concede with new pricing. GST pricing should have been planned well before implementing, which would have never brought this issue when tax rates are laid perfectly.

Reference: PRASHANTH PERUMAL J (The Hindu, dated 20 Nov 2017)

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