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MOST OFTHESERVICESKEPT BUTTER, HAIR DYES& WATER 1% TCSWOULD BECHARGED
AT ATAXLEVELOF12% COLOURSON LUXURYLIST BYE-COMMERCEFIRMS
GST unlikely to push up inflation
Lower rates lead to concerns over shortfall in government revenue, say economists
ISHAN BAKSHI CPI BASKET then the rates (under GST) are largely lower
New Delhi, 19 May than this. In services, a lot of services have
Pan, tobacco and intoxicants been kept at the lower tax level of 12 per cent.
O
n Friday, the goods and service tax 2.38 Miscellaneous So it doesnt seem to be a major issue, said
Clothing and 28.32
(GST) Council finalised the tax footwear 6.53 Madan Sabnavis, chief economist at CARE.
rates to be levied on services under But lower tax rates have raised concerns
the new indirect tax regime. This Fuel and over whether they will lead to a shortfall in
comes after the council had finalised the tax light government revenues.
rates for 1,200 goods the day before. 6.84 Miscellaneous The structure of rates that has been
comprises of
A preliminary reading of these rates sug- household revealed appears to cushion any
gests initial concerns that GST would push up
Housing Weights goods and inflation risk, while posing some concern
inflation in the short term may have been 10.07 services, health,
regarding the revenue buoyancy for the
% transport and
misplaced. But, economists worry that lower communication, central government, given that state
recreation and
tax rates under GST may dampen govern- amusement, governments revenues' would be protected
ment revenues. Food and beverages education,
personal care
through the compensation mechanism,
A look at the existing basket of the 45.86 and effects Nayar said.
Consumer Price Index (CPI) shows that food Source: MOSPI If the government is banking on buoy-
and beverages together account for 45.86 per ancy, then I dont think it will materialise as
cent of the index. But, most of the items in we may not see a pick-up in consumption
this category are either exempted or are taxed due to lower taxes, Sabnavis said.
at very low rates. This holds true for most lowered or maintained near earlier levels. Although the standard rate for services In its Union Budget 2017-18, the Centre
other items in the index. Items such as health This implies that at the aggregate level, the has been kept at 18 per cent, availability of had budgeted for only a five per cent increase
and education continue to be exempted. impact on inflation is likely to be limited. input tax credit going forward, may soften in collections from Union excise duties in
In fact, as of now, only 15 per cent of the With the effective tax rate intended to be the impact of GST on services inflation, she FY17, as against a growth of 22 per cent the
items are taxed at normal rates. And among brought down on most items, as well as a large said. year before.
those, while taxes on telecom, entertainment portion of the CPI basket being kept in the Others concur. On goods, the rates On service tax collections, it had
and consumer durables have now been exempted category, there is likely to be a lim- appear to be lower than earlier. If we take the budgeted for 11 per cent growth, only mar-
raised, those on transport and fast moving ited impact of the GST on goods inflation, thumb rule that goods are currently taxed at ginally higher than the seven per cent in the
consumer goods (FMCG) have either been said Aditi Nayar, principal economist, ICRA. 24 per cent (combining Centre and states), previous year.
