GST unlikely to spur inflation, say experts

NEW DELHI:With the announcement of tax rates for GST being like a mini-Budget since no changes in indirect taxes were made in the Budget this year, the structure of the rates is largely neutral for most major industry segments and the broad theme is to try and keep inflation under check.

vinaymishra188@gmail.com

Sanjeev Sharma

Tribune News Service

New Delhi, May 19

With the announcement of tax rates for GST being like a mini-Budget since no changes in indirect taxes were made in the Budget this year, the structure of the rates is largely neutral for most major industry segments and the broad theme is to try and keep inflation under check.

Experts say GST rates are geared to cushion inflation risk. Aditi Nayar, principal economist, ICRA Ltd., said with the effective tax rate intended to be brought down on most items, as well as a large portion of the CPI basket being kept in the exempted category, there is likely to be a limited impact of the GST on goods inflation.

She said though the standard rate for services has been kept at 18%, availability of input tax credit going forward, may soften the impact of GST on services inflation.

“The structure of rates that has been revealed appears to cushion any inflation risk, while posing some concern regarding the revenue buoyancy for the Central Government,” she added.

However, the cost of many services will go up by 20%. Priyajit Ghosh, Partner – Indirect Tax, KPMG, said 18% tax on most services would lead to 20% hike in services bills on most services, including telecommunication.

He said 28% tax for luxury hotels and cinema may come as surprise, however, it appears that this will ease the tax burden on certain services such as air travel, cab services and some goods as well.

Consumer durables prices are set to go up by 4%. Manish Sharma, President and CEO, Panasonic India, said under the new GST tax slab, a price rise of 4% and upwards could be expected for consumer durables. 

Traders body CAIT said the classification of goods under different tax slabs of GST are by and large fitted in the correct basket and it is expected that goods will be cheaper under GST. However, on the other side several items which have been placed under higher category of tax rate will disturb the pricing structure and will pinch the common man.

Crisil Research said for major sectors, the tax rates announced by GST council are mostly in line with the present effective tax incidences.

However, for players having higher incidence of CST at present, the saving under the new tax regime will be to the tune of 2%. 

Tax saving will be relatively higher in automobiles sector, specifically SUVs, as the tax incidence will reduce from current effective tax rate of over 50% to 43% (28% GST + 15% cess). 

The Indian Beverage Association said it is extremely disappointed, as sweetened aerated water and flavoured water are placed in the highest tax slab rate of 28% combined with an additional cess of 12%.

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