Inflation will fall by 2 per cent on implementation of the goods and services tax (GST) and create buoyancy in the economy, Revenue Secretary Hasmukh Adhia has said. With the stage set for the biggest overhaul of India’s tax system since Independence, the government will launch a massive awareness campaign to educate consumers about GST so that they are not fleeced by traders in the name of new tax.
In an interview to PTI, he said the all-powerful GST Council will meet next week to decide on tax rates of contentious items like gold, bidi and biscuits, just in time for its rollout from July 1.The Council over the two days last week assigned tax rates to more than 500 services and 1,200 goods by setting them in five broad rates of 5, 12, 18 and 28 per cent.
Adhia and his team visited this picturesque hill station near Srinagar for a short break before heading back to Delhi. The rates, he said, have been so fixed that incidence of taxation has come down in many and remained at the same level as now in most of the remaining goods and services.
“I don’t think inflation will at all go up because of GST. We have taken special care to ensure inflation does not go up. Our internal estimate is that after the rates are decided, inflation should come down by 2 per cent,” he said.
While the current indirect tax regime suffers from significant cascading, which leads to higher cost of goods and services, a free flow of credits across transactions under the GST framework will bring down the tax cost for businesses. Also, taxpayers or consumers currently have to pay both the Centre and state taxes on a single sale, which adds to increased costs for businesses and consumers. Such an increase in costs adds to the inflationary pressure.
GST will be a single nation-wide sales tax replacing a string of central and state levies. “That is how we have managed to keep our inflation basket under control,” Adhia said, promising to fix any compliance issues that crop up during implementation.
The revenue secretary said GST will create buoyancy in the economy through better compliance and ease of doing business.
“I wouldn’t say anything is pending, but I would say the government has to reach out to the trade and industry and also the machinery of explaining the GST procedures in townhall meetings. We need to accelerate this,” he said on the task ahead. Most importantly, consumer education campaign has to be taken up, he added.
“Because we have taken care to ensure the average tax incidence on commodities does not go up… There may be some traders who will try to tell consumers that under the changed GST rates, they will have to pay more. We have to educate them,” he said. Consumers, he stressed, need not be charged more in all cases even though the headline rate may go up as input tax credit or setting off the tax paid on raw material is available.”We need a lot of consumer education for that,” he said.
To safeguard consumer interest, the GST law provides for an anti-profiteering mechanism that will ensure industries that have got relief by way of lower taxes actually pass on the benefit to consumers. “We will try to set it (anti-profiteering machinery) up as early as possible or we will try to identify an agency which will do it. We are working on it,” Adhia said.
Even if setting up the agency takes three months, the agency can do a post mortem to see if anybody has unduly profited from GST. “Even if it is set up after 3 months, it doesn’t matter because if anybody has done profiteering, the books (of accounts) will speak for themselves and so, we can do a post mortem of those cases and we can take care of that,” he said. But the effort for now is to hold consultations with the trade and industry. “We will urge the big corporates that in the interest of smooth implementation of GST, they should not increase any rates now,” he said.
The secretary said rates for all items but for six like gold, bidi, biscuits, textiles, footwear and natural or cultured pears and semi-precious stones have been decided.
“We decided to keep the things on which a lot of people have a lot of things to say – like bidi, gold, precious metal – and we will take up those at a later meeting. The main achievement now is we have been able to inform people about the tax rates of many of commodities except six,” he added.
Adhia made the point that rates of many items have reduced while some have been put on the exemption list. “Our estimate is revenue loss on account of this will be more than offset by the revenue gain which we gain because of better compliance,” he added.
He expressed confidence that the requirement of compensation to make up for revenue loss of any state will be fulfilled from cess on demerit and luxury goods like car and tobacco. Adhia claimed that the IT network for GST is on track and there are no issues of privacy being compromised.