The iPhone, GST, and the Mystery of Indirect Taxes: Sanjeev Sanyal Unpacks the Price Tag

What do a sleek, cutting-edge iPhone and the Goods and Services Tax (GST) have in common? At first glance, the answer might seem like a riddle. Yet, Sanjeev Sanyal, a distinguished member of the Prime Minister’s Economic Advisory Council, has masterfully woven these two seemingly disparate entities into an illuminating analogy that brilliantly demystifies the complex world of indirect taxation.

Imagine, if you will, an iPhone in its purest, most 'naked' form.

Stripped of all the layers of taxation, it would be remarkably inexpensive. Sanyal paints a vivid picture: the moment this raw product begins its journey from a manufacturing plant, through various logistical channels, and finally onto the retail shelves, it accumulates a series of invisible costs – the indirect taxes.

This journey, from creation to consumption, is where the price tag truly begins to swell, reflecting more than just the cost of parts and assembly.

Before the advent of GST, India's indirect tax landscape was a labyrinth of complexities. Taxes were levied at multiple stages, and critically, one tax was often applied on top of another tax.

This phenomenon, known as the 'cascading effect' or 'tax on tax,' meant that a manufacturer would pay excise duty, then a dealer would pay sales tax on the already taxed product, and so on. The cost piled up, creating an opaque and inefficient system that ultimately inflated consumer prices significantly and made doing business a bureaucratic nightmare.

Enter the Goods and Services Tax, a landmark reform designed to simplify this very process.

Sanyal's analogy highlights how GST, unlike its predecessors, aims to break this chain of cascading taxes. With GST, businesses can avail 'input tax credit.' This means that a manufacturer, for instance, can claim credit for the GST paid on raw materials and components when paying the GST on the finished product.

Similarly, a wholesaler can claim credit for the GST paid to the manufacturer, and a retailer for the GST paid to the wholesaler.

This streamlined approach ensures that tax is essentially paid only on the 'value added' at each stage, rather than on the accumulated taxes of previous stages. While the final price the consumer pays still includes all these accumulated indirect taxes – after all, the government needs revenue – the mechanism behind it becomes far more transparent and efficient for businesses.

It's the difference between navigating a dense, tangled jungle and following a clearly marked highway.

Sanyal's insightful comparison serves as a crucial reminder that the price tag on an iPhone, or indeed any consumer good, is not just a reflection of its intrinsic value and production cost. It's a complex mosaic, meticulously crafted by the hands of manufacturers, logistics providers, retailers, and crucially, the layers of indirect taxation that govern economic activity.

By understanding this interplay, we gain a clearer perspective on the economic forces that shape our everyday purchases, appreciating the subtle yet profound impact of policies like GST on both businesses and the end consumer.