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GST may not lead to inflation if tax rate is about 18%: CAIT

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The standard tax rate near 18 per cent under GST will prove to be an ideal one and in all probability, will not stoke significantinflation as assumed by many, the Confederation of All India Traders ( CAIT) on Sunday said. However, finalisation of the tax rate depends much on the classification of goods and services under the exempted category, and alsoundernominaltaxrate, which may be one per cent, CAIT said.
CAIT national President BC Bhartia and Secretary General Praveen Khandelwal said under the current VAT regime, items placed under the the 5- per cent tax slab will be attracting standard rate of tax, which may be 18percent, and itisfearedsuch asituation will lead to inflation.
However, it may be noted that goods placed under 5per cent are largely used as raw material for the finished goods and have been attracting excise and service tax so far with no advantage of input credit for MSME ( micro, small and medium enterprise).
UnderGST, these will be placed under a higher slab and will be eligible for input tax credit for not just goods but services.
In spite of all these mathematics, ininitial days, there might be some inflation which will subside once the taxation system is duly adopted in its letter and spirit, the statement added. Stress in gon the need for unification of taxes levied on goods and services, the functionaries said that for any business of goods trading, support of service sector is required since both compliment each other.
Both Bhartia and Khandelwal are of the view that major challenges will come from implementation and compliance since the GST tax structure is entirely based on e- compliance mechanism.
Finalisation of the tax rate depends much on the classification of goods and services under the exempted category, and also under nominal tax rate.
Business Standard New Delhi,08th August 2016

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