The government, over the last few days, finalised GST rates that could blunt the reform’s growth impact. It has decided on multiple tax rates and exemptions, moving further away from an ‘ideal’ structure. The medium-term addition to GDP growth from GST will be closer to 40 bps—sizeable, but lower than the 80 bps calculated earlier. Estimates suggest that there is likely to be no upward impact on inflation. Rather, if tax cuts are passed on and the input tax credit mechanism runs with part efficiency, GST could help lower the inflation rate by 10-50bps. There won’t be any additional pressure on fiscal financing given the expanded scope of service taxes and the numerous cesses. If the government is able to move towards a lower number of rates and fewer exemptions over time, the GST will ultimately carry a greater punch. For now, the GST is on track to be implemented on July 1.
Following a decade long wait, the Goods and Services (Constitutional Amendment) Bill cleared the path for implementation of GST, which by unifying all indirect taxes, has the potential to transform India into ‘a single common market’, bringing with it huge efficiency gains.
via GST rate impact: Here’s how the new tax can carry a greater punch – The Financial Express
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