Raising the tax bar from 5% to 10 % would have an immediate effect on the cost of living in India.
Basic goods of household necessities such as edible oil, sugar, spices, tea, and coffee, may soon get costlier as the GST council is likely to increase the base rate of 5 per cent. The GST council has kept the items of daily needs at a minimum tax slab of 5 per cent, which can now be increased to boost the government’s indirect tax revenue. It is believed that the GST rate slabs can be increased from 5 per cent to 8 per cent and 12 per cent to 15 per cent, sources told PTI. However, driven majorly by food inflation, the retail inflation in India has already touched a 3-year high in November 2019, which may further rise if the taxes are increased.
Amid the ongoing slowdown, the consumption has already fallen and another hit to the per capita income may add an adverse effect to the consumption expenditure. There have been many changes and modifications in the Goods and Services Tax but the hike in base rate may make the cost of living higher.
“The rates have been decided based on a particular rationale and that must be revisited now. An increase in GST rates will directly impact prices for consumers, which may be passed on further and lead to a price hike,” Archit Gupta, Founder and CEO, Cleartax.
This will then have a bearing on consumption patterns which may further slump, therefore, a GST rate hike can impact GDP numbers and have more widespread implications, Archit Gupta added.
Earlier this week, the officers from the Central and state governments met to finalise recommendations on rate rationalisation, on which the detailed presentation will take place during the GST Council meeting on 18 December.
It is also expected that the GST council may increase cess on some items and reduce the number of rate slabs. The rate hike may take place at a time when the country is already struggling with a job crisis and a severe economic slowdown.
“Raising the tax bar from 5% to 10 % would have an immediate effect on cost of living in India as it would push the prices for items of basic importance including food products like packaged rice, wheat, corn and cereals,” Rajat Mohan, Senior Partner, AMRG & Associates, told Financial Express Online. In this period of economic slowdown and unemployment it would lead to lower net disposable income for the households back pushing India on ease of living criterion, Rajat Mohan added.
Meanwhile, apart from the rate hike, the businesses have been constantly asking the GST council to reduce the burden of compliance and to bring more transparency into the GST system. E-invoicing is one of the areas, where the GST council has come up with high hopes.
“Some of the businesses file the return on a monthly basis, while others file it quarterly. For monthly return filer businesses, reconciliation becomes very difficult as they need to wait until the quarterly suppliers file the return. If return filing is made quarterly for everyone, it will save much precious time for business owners and reconciliation will also become smoother,” said Rajesh Gupta, Co-founder and Director, BUSY (Accounting Software).
To ensure smooth compliance for taxpayers as well as to ensure better transparency in the system, the new GST returns filing system is planned to be launched in April 2020.