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Revenue department to calculate GST impact on inflation

Finance ministry’s revenue department wants to calculate GST impact on inflation to minimise price rise once the indirect tax is rolled out


GST rate for items that have high weightage in retail inflation will be fixed close to the current tax rate. Photo: Bloomberg
GST rate for items that have high weightage in retail inflation will be fixed close to the current tax rate. Photo: Bloomberg

New Delhi: The revenue department will work out GST impact on inflation before the fitment committee starts fixing rates for various goods and services, in its attempt to minimise price rise once goods and services tax (GST) regime is rolled out.

According to officials of the revenue department, an “exempted list for both goods and services” will be drawn up, and GST rate for majority of the items, which have high weightage in the CPI basket, will be fixed close to the current tax rate.

CPI is short for Consumer Price Index—a measure of retail inflation.

“The fitment of rates would be done in a way to ensure items which have more weightage in CPI basket are not affected. We will do internal calculation to make sure that rates do not affect CPI-based inflation,” an official said.

The GST council has already decided on a four-slab tax structure of 5%, 12%, 18% and 28%.

In addition, a cess would be levied on demerit and luxury goods, the proceeds of which will be utilised to compensate the revenue loss incurred by states on roll out of the indirect tax.

While the cess for aerated drinks and luxury cars has been capped at 15% over and above the peak rate of 28%, the cess on pan masala has been capped at 135% ad valorem. Tobacco cess will be capped at a combination of Rs4,170 per 1,000 sticks or ad valorem of 290%. Cess on coal would be at Rs400 per tonne. A final call on levy of cess on each item will be taken by the GST council at a later date.

According to the official quoted above, if the revenue accruing from the levy of cess falls short of the amount required to compensate states, then the Centre will borrow funds from the exchequer. “To repay the additional fund which would be borrowed from the exchequer the cess can be continued for sixth year if the GST council decides,” the official said.

All existing cesses, apart from the environment cess and the national contingency and calamity duty (NCCD), will be abolished under the GST regime.

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