The Goods and Services Tax (GST) has been passed in both Lok Sabha and Rajya Sabha. Moreover, Assam shows that they are not behind any other states. This is because Assam assembly has passed the GST with a thumping majority within days after Lok Sabha clearance.
Even though the Goods and Services Tax (GST) simplifies the ease of doing business, elimination of dual taxation, ensures transparency with decreased logistics costs, the main question here is whether it will increase inflation.
Recently, the Reserve Bank of India in its third bi-monthly monetary policy stated the current retail inflation is at a 22-month high of 5.77 percent in June. There is a growing concern among people that inflation will worsen in the upcoming months with the roll-out of the 7th Pay Commission and GST implementation.
Only marginal impact on Inflation
RBI Deputy Governor Urjit Patel recently disclosed that about 55 percent of items in the consumer price index (CPI) are exempt from GST. The respective state and central governments have built a uniform list of items that has been excluded from GST. Since most of the items in the CPI basket will not be affected, the impact of GST on inflation will be only marginal.
Elimination of exemptions in the GST bill
With the implementation of the GST, the exemption raj will come to a halt. It will be replaced by merit goods such as food that is commonly consumed by poor people. Hence, the prices foods under the list will not be affected. Hence, there will be no rise in inflation.
According to Arvind Subramanian, Chief Economic Adviser to Government of India, the poor section of the society will be largely protected under the GST since 53 to 54 percent of the CPI basket will be exempt from it. While 30 to 35 percent will be taxed at a lower rate, 12 to 13 percent will be taxed at a normal rate. Hence, the GST will only bring minimal impact to inflation.
In the meantime, the negative list of services exempted from the overall levy will be reduced to essential services such as health and education.
GST Council to decide the rates
The GST bill passed in the Parliament doesn’t talk about the rates. However, the final decision will be taken by the GST council, which will have representations from both states and the centre. After the rates are decided, we will come to know whether it will lead to inflation.