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GST to not prompt inflation if tax rate remains 18 per cent: CAIT

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Evaluating various provisions of Model GST Bill, the Confederation of All India Traders (CAIT) said that standard tax rate if remain nearby 18 per cent under will prove to be an ideal tax rate and in all probability will not incite and significant inflation as assumed by many people.

GST may not prompt inflation if tax rate is about 18 per cent: CAIT
Standard tax rate if remain nearby 18 per cent under GST will prove to be an ideal tax rate and in all probability will not incite and significant inflation as assumed by many people.

However, the finalisation of tax rate much depends upon classification of goods & services under exempted category and also under nominal tax rate which may be 1per cent, CAIT said in an official release.

The much awaited was passed by Rajya Sabha on Wednesday.

“Under current VAT regime items placed under 5 per cent tax slab will be attracting standard rate of tax which may be 18 per cent and it is feared that such a situation will lead to inflation. However, it is noteworthy that goods placed under 5 per cent are largely used as raw material for finished goods and were attracting Excise and Service Tax so far with no advantage of input credit for MSME. Whereas under GST though they would be placed under higher slab but will be eligible for input tax credit for not only the goods but even for the services,” CAIT National President, B.C.Bhartia and Secretary General, Praveen Khandelwal said, explaining the reasoning.

“However, in spite of all these mathematics, in initial days there might be some inflation which will be subside once the taxation system is duly adopted in its letter and spirit,” they added.

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The major challenges will come from implementation and compliance side since GST tax structure is entirely based on e compliance mechanism, the traders body asserted.

“Having four verticals i.e. e-tax, e-return, e-audit & e-assessment; it will be challenging for small players to be equipped with necessary computerised infrastructure. About six crore small businesses are the real tax collectors and as per an estimate only 25per cent to 30per cent of this sector is computer enabled. The rest of 70per cent is yet to adopt technology and the Government must draw a time bound mechanism to equip them with computers and imparting necessary training for computer operations,” Bharti and Khandelwal said.

Simultaneously, many issues like nature of treatment for stocks lying in the market a day before commencement of GST, on which Central Excise & other taxes have been paid, non-granting of input tax credit to a buyer for the default or lethargic attitude of seller, obligation to seek separate registration in each State in case of multi-state business, harsh provisions of penalty and imprisonment, no accountability of officers or administration, determination of place of supply, are some of the critical issues which needs to be addressed in a holistic way, CAIT said.

“In the light of same, we have urged the Union Finance Minister to include the representatives of trade and industry in GST Council for making them partners in decision making process. We have also urged that first three years after GST implementation should be declared as transformation period and barring habitual offenders or tax evaders, rest of the traders may not be penalised for defaults,” CAIT added.