PJAEE, 17(6) (2020)

GOODS AND SERVICES TAX AND CONSUMER BUYING BEHAVIOUR – A

STUDY

GOWTHAM RAMKUMAR1, DR.S.CHITRA2

1
Research Scholar, Department of Commerce, College of Science and Humanities, SRM Institute of
Science and Technology, Kattankulathur, Chennai – 603203
2
Associate Professor and Head, Department of Commerce, College of Science and Humanities, SRM
Institute of Science and Technology, Kattankulathur, Chennai – 603203

GOWTHAM RAMKUMAR1 DR.S.CHITRA2, GOODS AND SERVICES TAX AND

CONSUMER BUYING BEHAVIOUR – A STUDY– Palarch’s Journal of Archaeology
of Egypt/Egyptology 17(6) (2020). ISSN 1567-214X.

Keywords:Goods and Services Tax, Brand switching decisions, Purchasing power,

Standard of Living.

ABSTRACT
Goods and Services Tax plays a major role in deciding the purchase decision of the
consumers. This is because, it plays a major role on the pricing decision of different members of
channels of distribution. The prices of the products differ according to the taxation slab in which
they are grouped under GST. However marketers through their effective strategies manage to
offer some differentiation for the consumers, in terms of price, to the consumers. One of the
unique aspects of indirect taxation system is the transferability nature of tax burden to the
consumers. So often it is observed that indirect taxes seems to reduce the spending ability of the
consumers, provided income of the consumer remaining constant. Thus a rational buyer, under
these conditions, often seeks to buy a product that gives him maximum benefit at a lower cost.
Thus goods and services tax influences the buyer’s purchase decision with range of alternatives
available for them to choose. This research paper seeks to the study the how goods and services
tax alters the buying behavior of consumers.

INTRODUCTION
The Purchase decision of consumers is largely influenced by their purchasing
power. The Purchasing power of consumers, in turn, are influenced by the taxes
imposed on them. Often taxes limits the purchasing power of consumers. Thus, in
such conditions, a rational consumer will design his shopping behaviour in such a
way that the resources available with him are utilized in a best possible way
resulting in maximum benefits at a lower cost. The study of consumer behaviour is
of fundamental importance to marketers as it helps them in understanding the

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buying pattern of consumers. Further, analyzing the consumer behaviour will also
help the marketers to predict the future trend of the market. This information can be
used for designing proactive marketing strategies so that the businesses are ready
for change that is going to occur in future and capitalize the profit opportunities
offered by the market. Further understanding consumer behaviour helps marketers
and other stakeholders of businesses in the following ways
1. It helps the businesses to understand the consumer’s price for the product.
2. Understanding best consumer convincing promotion tools of business.
3. Understand the behaviourial characteristics of different groups in the population.
4. Develop strategies for customer retention and so on.
Understanding the influences of taxes on purchasing behaviour is equally
important for consumers. Indirect taxes play a major role in influencing the
spending ability of consumers. Goods and Services Tax, often referred to as GST,
plays a key role in purchase decision of Indian consumers. GST as an instrument of
fiscal policy of government determines the price level of the country. GST is
included in the selling price of the product. Thus the tax rates will have a huge
impact on their purchases. Often taxes impact on purchase behaviour is reflected by
reduction in quantity of goods bought by the buyer. However the behaviour directly
dependent on price increase, importance of goods for customer, the level of
customers’ wealth, the share of goods in total consumption expenditure, etc. Thus
the marketers needs to understand how taxes impact the consumers purchase
decision. This can help them in framing pricing policies in such a way that the
consumers do switch over from their products to another due to price changes. This
research study seeks to identify the relationship between buying behaviour and
GST with specific emphasis on Fast Moving Consumer Goods industry.

REVIEW OF LITERATURE
Gowtham Ramkumar and Chitra.S in their study titled “Role of Goods and
Services tax in influencing disposable income of consumers” concluded that
indirect taxes have a direct positive relationship with the disposable income of
consumers. They suggested that businesses should design their marketing strategies
according to the changes in the tax policies. Further consumers can reduce the
negative impact of goods and services tax by tax planning.
Gowtham Ramkumar (2018) in his study titled “Consumer perceptions towards
Goods and Services Tax Implementation – An Economic approach” concluded that
four tier system of products and services tax can facilitate in burdensome the posh
things at the next level and sure revisions created when the initial implementation
of products and services tax has reduced the burden of customers and finished that
it'll take time to judge whether or not the new legal system has benefited Bharat or
not.” (Ramkumar, 2018)
Karthick R et.al(2017) in their research paper “A Study on consumer perception
towards goods and services tax in Kanchipuram district” found that consumers feel
that the tax rates square measure high for the product of daily use. They additional
found that buyers feel that methodology being followed for GST is extremely
difficult and periodic analysis of tax rates is needed. additional they over that GST
will be eminent only if business persons have a right understanding of however
GST needs to be charged to the shoppers.” (R Karthick, 2017)
Chaurasia et al. (2016) Studied, “Role of products and Services Tax within the
growth of Indian economy” and ended that that in overall GST is helpful for the

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event of Indian economyand this will jointly facilitate in up the Gross Domestic
product of the country over 2 percent.” (Pradeep Chaurasia, 2016)
Jaiprakash ( 2014) in his analysis study mentioned that “the GST at the Central and
thus the State level area unit expected to gift further relief to trade, trade,
agriculture and customers through a further comprehensive and wider coverage of
input tax set-off and repair tax set-back, subsuming of the many taxes at intervals
the GST and phasing out of time. Responses of trade and in addition of trade ar
thus encouraging. so GST offers USA the only option to broaden our assets which
we have a tendency to mustn't miss this opportunities to introduce it once the
circumstances area unit quite favorable and economy is enjoying steady growth
with entirely delicate inflation.” (Jaiprakash, 2014)

STATEMENT OF THE PROBLEM

Goods and Services Tax play a predominant role in influencing the buying
behaviour of consumers. Consumers are considered as Kings of businesses.
Without consumers, businesses cannot survive. Taxes influence the prices of the
products. Thus it influences the shopping pattern of consumers. A rational
consumer will always buy a product that best satisfies his requirements at a lower
cost. Thus business needs to understand the relationship between indirect taxes and
buying behaviour of consumers. Thus, this study seeks to identify the relationship
between GST and buying behaviour of consumers with reference to FMCG sector.

NOVELTY OF RESEARCH
Various research studies were carried out by eminent researchers on goods
and services tax. Similarly large number of research studies were carried out to
understand the consumer behaviour. However very few studies were carried on
relationship between indirect taxes and consumer behaviour. In Indian context,
research studies relating to goods and services tax often focuses on its problems
and prospects for different sector. Consumer behaviour research studies often
focused on identifying factors contributing to purchase decision, customer
satisfaction, customer perception and so on. The research studies did not focus on
relationship between indirect taxes and consumer behaviour. Hence this research
study is carried out and it is unique from other research studies relating to goods
and services tax implemented in India.

OBJECTIVES OF THE STUDY

The objectives of the study are as follows
1. To analyze the demographic profile of the respondents.
2. To portray consumer perceptions about goods and services tax and consumer
behaviour.
3. To identify the relationship between goods and services tax and consumer
behaviour.
4. To suggest measures on designing successful business strategies.

SIGNIFICANCE OF THE STUDY

This study seeks to benefit taxation researchers and FMCG companies.
This research will provide a basic framework for taxation researchers on the
mechanism in which the consumers alter their buying behaviour because of the
changes in the indirect taxes. Further, FMCG companies can understand how

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indirect taxes critically impact their decisions and this will help to designing
successful pricing strategies to win over their competitors in the market.
RESEARCH METHODOLOGY
Sources of Data Primary Data with Structured Questionnaire
Research Design Quantitative and Empirical
Sampling Design Simple Random Sampling
Sample Area Chennai
Sample Size 50
Statistical Design Descriptive Analysis, Multiple Regression Analysis
Independent Variables Goods and Services Tax, Spending Ability
Dependent Variables Purchase Decision

INSTRUMENTAL VALIDITY AND RELIABILITY

Table 1 showing Validity of the Instrument
Correlations
GST GSTPD GSTSP TotalGST
GST Pearson Correlation 1 .634** .015 .813**
Sig. (2-tailed) .000 .930 .000

N 50 50 50 50

GSTPD Pearson Correlation .634** 1 .020 .795**

Sig. (2-tailed) .000 .906 .000

N 50 50 50 50
GSTSP Pearson Correlation .015 .020 1 .474**
Sig. (2-tailed) .930 .906 .003

N 50 50 50 50

TotalGST Pearson Correlation .813** .795** .474** 1

Sig. (2-tailed) .000 .000 .003

N 50 50 50 50
**. Correlation is significant at the 0.01 level (2-tailed).

Source: Primary Data Analysis

Table 1 shows the validity of the instrument used for the study. The Questionnaire
used for the study is divided into three parts excluding demographic profile such as
GST perceptions, purchase decision and spending ability. The results suggest that
the questionnaire has a greater validity. The total correlation between the variables
is highly significant i.e. 0.000, 0.000 and 0.003 respectively

Table 2 showing Reliability

Reliability Statistics
Cronbach's Alpha N of Items
.883 26
The Table 2 shows the reliability of the instrument. The Cronbach Alpha value
0.883 indicates good reliability of the results of this study.
RESULTS AND DISCUSSION

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Table 3 shows Age of the Respondents

Age of the Respondents

Frequency Percent Valid Percent Cumulative Percent

Valid 21-30 42 84 83.8 83.8
31-40 8 16 16.2 100.0
Total 50 100.0 100.0

Source: Primary Data Analysis

The table 3 shows the Age of the respondents. From the above table it is clear that
84% of the respondents are in the age group of 21-30 and 16% of the respondents
belong to 31-40 respectively.
Table 4 shows Monthly Income of the Respondents

Monthly Income of the Respondents

Frequency Percent Valid Percent Cumulative Percent

Valid Below 10000 30 60 59.5 59.5
10000-20000 8 16 16.2 75.7
Above 30000 7 14 13.5 89.2
20000-30000 5 10 10.8 100.0
Total 50 100.0 100.0

Source: Primary Data Analysis

The table 4 shows the monthly income of the respondents. From the above table it
is clear that 60% of the respondents earn below Rs.10000 per month, 16% of the
respondents earn between Rs.10000 and Rs.20000 per month and 14% earn above
Rs.30000 per month while 10% employees earn Rs.20000 – Rs.30000 respectively.

Table 5 shows Educational Qualification of Respondents

Educational Qualification of the respondents

Frequency Percent Valid Percent Cumulative Percent

Valid Undergraduate 35 70 70.3 70.3
Post Graduate 8 16 16.2 86.5
Professionally Qualified 6 12 10.8 97.3
Others 1 2 2.7 100.0
Total 37 100.0 100.0

Source: Primary Data Analysis

The table 5 shows the educational qualification of the respondents. From the above
table it is clear that 70% of the respondents are undergraduate, 8% of the
respondents are post graduates, 6% of the respondents are professionally qualified
while 1% of the respondents belong to other category respectively.

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Table 6 shows the consumer perception about Goods and Services Tax
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Dual GST increased tax 50 1.00 5.00 3.8108 .99549
collection due to wider base
and better compliance.

It has increased inflation rates 50 2.00 5.00 3.6216 1.08912

in the country.
Dual GST is a simple tax 50 2.00 5.00 3.5946 .95625
compared to previous tax
system.

Dual GST reduces cascading 50 1.00 5.00 3.5676 1.14359

effects of taxes
Dual GST increases efficiency 50 1.00 5.00 3.4865 1.01712
of the economic system.

It removes trade barriers and 50 1.00 5.00 3.4324 1.11904

facilitates ease of doing
business
Dual GST reduces transaction 50 2.00 5.00 3.4324 1.09394
costs of taxpayers

ITC reduces price paid by 50 1.00 5.00 3.3784 1.08912

consumers for goods and
services.

Tax structure helps in 50 2.00 5.00 3.3784 .82836

attracting FDI and reducing
cost
Four tier GST system makes 50 1.00 5.00 3.3784 .98182
tax administration easier
Valid N (listwise) 50
Source: Primary Data Analysis
The table 6 shows the consumer perception about goods and services tax. The
results are shown in descending order of means. Highest mean indicate more
favorableness to a statement and vice versa. The consumers feel that GST has
facilitated the tax collection made by the government. Thus is indicated by the
highest mean score of 3.81. Further consumers also feel that the newly introduced
goods and services tax has increased the inflation rates in the country. It is
indicated by the mean core of 3.62. Further it is also clear that goods and services
tax made the indirect tax system simple, increased economic system’s efficiency
and reduced the cascading effects. They are indicated by mean score of 3.59, 3.48
and 3.56 respectively.

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Table 7 shows the consumer perception about purchase decision

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Price plays a major role in my 50 2.00 5.00 4.2162 .78652
brand selection decision.
GST had made an impact on 50 2.00 5.00 4.1081 .80911
social behavior of consumers.

GST has increased digitalized 50 1.00 5.00 3.7568 1.06472

payments during purchases.

GST facilitates in 50 2.00 5.00 3.6757 .97337

understanding the target
markets.
Post sale services are 50 1.00 5.00 3.6486 .91943
available for high priced
products and it is satisfactory.

GST has increased the 50 1.00 5.00 3.5946 .92675

competitiveness of businesses.

GST helps in understanding 50 1.00 5.00 3.4865 1.04407

the external influences on
businesses.
High GST products are 50 1.00 5.00 3.3784 1.08912
available when demanded by
customers
High GST products are of 50 1.00 5.00 3.2162 1.29390
good brand image.
High GST products provide 50 1.00 5.00 3.0000 1.08012
user convenience.
Valid N (listwise) 50
Source: Primary Data Analysis
The table 7 shows the consumer perception about role of goods and services tax in
purchase decision. The results are shown in descending order of means. Highest
mean indicate more favorableness to a statement and vice versa. Price of the
product is a major factor in consumer’s purchase decision. Thus is indicated by the
highest mean score of 4.21. Further consumers also feel that the newly introduced
goods and services tax has modified their social behaviour. It is indicated by the
mean core of 4.10. Further it is also clear that goods and services tax has increased
digitalized payments, facilitated targeting and make customers satisfied about post

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sales services. They are indicated by mean score of 3.75, 3.67 and 3.64
respectively.

Table 8 shows consumer perception about Spending Ability after GST

Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
GST has increased the cost of 50 2.00 5.00 4.1351 .91779
living.
GST limits my spending 50 2.00 5.00 4.0811 .92431
ability.
GST has increased the 50 1.00 5.00 3.8108 1.07595
inflation level in the country
leading to price changes.
Cost of health care services are 50 1.00 5.00 3.8108 .96718
increasing after GST
implementation.

Cost of Education has 50 2.00 5.00 3.7838 .85424

increased after the
implementation of GST.

GST has reduced the 50 2.00 5.00 3.5676 .86732

availability of consumer
credits.
Valid N (listwise) 50
Source: Primary Data Analysis
The table 8 shows the consumer perception about spending ability after goods and
services tax. The results are shown in descending order of means. Highest mean
indicate more favorableness to a statement and vice versa. The consumers feel that
GST has increased their cost of living. Thus is indicated by the highest mean score
of 4.13. Further consumers also feel that the newly introduced goods and services
tax has limited their spending ability. It is indicated by the mean core of 4.08.
Further it is also clear that goods and services tax resulted in price changes thereby
increasing cost of health care services and education. They are indicated by mean
score of 3.81, 3.81 and 3.78 respectively.

Table 9 shows Kolmogorov-Smirnova test of Normality

Tests of Normality
Kolmogorov-Smirnova Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
TotalGST .088 50 .200* .976 50 .582
*. This is a lower bound of the true significance.
a. Lilliefors Significance Correction
Source: Primary Data Analysis

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The table 9 shows the Kolmogorov-Smirnova test and Shapiro-wilk test of

normality. Since the p-value is greater than 0.05 in both the cases 0.200 and 0.582
respectively, it can be concluded that the data follows normal distribution. Hence,
parametric tools can be used for inferential analysis.
Figure 4 shows Normal Q-Q Plot

The figure 4 shows the Normal Q-Q Plot. From the above figure it is clear that the
data corresponds to normal distribution as majority of the observed values are
within the straight line in the diagram.
Table 10 shows model summary of multiple regression analysis.

Model Summaryb
Change
Statistics
Adjusted R Std. Error of R Square Durbin-
Model R R Square Square the Estimate Change Watson
1 .634a .402 .367 .51950 .402 2.393
a. Predictors: (Constant), GSTSP, GST
b. Dependent Variable: GSTPD
Source: Primary Data Analysis
The table 10 shows the regression analysis of the variables like Dependent variable:
purchase decision and Independent Variables: goods and services tax and spending
ability. The R square change value is 0.402, which shows that 40.2% of the
variation in purchase decision is explained by goods and services tax and spending
ability. The Durbin-Watson 2.393 which is more than 1 and not greater than 3 also
supports this regression model. Factor R of multiple cross-correlation 63.4 percent
shows high cross correlation which is less than the acceptances level of 0.01.

Table 11 shows ANOVA

ANOVAa
Sum of
Model Squares df Mean Square F Sig.
1 Regression 6.172 2 3.086 11.434 .000b
Residual 9.176 34 .270
Total 15.348 36
a. Dependent Variable: GSTPD
b. Predictors: (Constant), GSTSP, GST
Source: Primary Data Analysis

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H0– Goods and Services tax does not influence the purchase decision of
consumers.
H1 – Goods and Services tax influence the purchase decision of consumers.

The table 11 shows the ANOVA results. From the above table, it is clear that there
is a significant association between purchase decision of consumers and goods and
services tax. Since the computed value i.e. .000 is less than the accepted level 0.01,
the null hypothesis is rejected and alternate hypothesis is accepted.
Table 12 shows Regression Co-efficients
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) 1.581 .663 2.385 .023
GST .566 .118 .634 4.780 .000
GSTSP .011 .133 .011 .080 .937
a. Dependent Variable: GSTPD
Source: Primary Data Analysis
The table 12 shows regression co-efficient. From the above table, the regression
equation is derived as follows

Y = 1.581 + 0.566 X + 0.011 X

1
In the above equation X1represents goods and2 services tax and X2 denotes spending
ability. From the above equation it is clear that purchase decision is explained by
56.6% variation in goods and services tax and 1.1% by the spending ability. It is
also clear that there is a positive relationship between the variables used in the
study.

Figure 5 shows Regression Line

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Figure 5 explains the regression line. It is clear that cause and effect relationship
between variables is positive.

CONCLUSION AND RECOMMENDATIONS

To conclude, GST has a major impact on the purchasing power of consumers.
Since price is the key focus of a rational consumer, GST to some extent creates a
possibility of modifying the buying behaviour of consumers. Purchase decision is
one of the outcomes of buying behaviour of consumers. Since, GST is included in
the selling price, FMCG companies should take due care in formulating their
pricing strategies. Market or on-going pricing will be more suitable under these
circumstances as it offers dual benefit of customer retention and competition
management.

REFERENCES
1. Jaiprakash. (2014). Indirect tax reforms in India and way ahead for GST.
International Journal of Computing and Corporate Research.
2. Pradeep Chaurasia, S. S. (2016). Role of Goods and Services Tax in the growth
of Indian Economy. International Journal of Science, Technology and
Management, 152-157.
3. R Karthick, E. H. (2017). A Study on consumer perception towards GST in
Kanchipuram district. PARIPEX‾INDIAN JOURNAL OF RESEARCH, 82-83.
4. Ramkumar, G. (2018). Consumer perceptions towards Goods and Services Tax
Implementation - An Economic Approach. ELK Asia Pacific Journal of Marketing,
21-35.
5. Ramkumar, G., & Chitra, S. (2019). Role Of Goods And Services Tax In
Influencing The Disposable Income Of The Consumers. Think India Journal, 22(4),
866-871. Retrieved from https://journals.eduindex.org/index.php/think-
india/article/view/8906.

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