GST will have minimal impact on retail inflation, says Morgan Stanley report

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The Goods and Services Tax (GST) is likely to have minimal direct impact on the consumer price index (CPI) basket, a report Morgan Stanley said.
This is because most of the tax rates for the items in the CPI basket are likely to be taxed at a lower rate under the GST as compared to the existing levy, it said.
However, assuming that GST does have the intended effect of increasing tax compliance, the tax burden would increase. This could lead companies to pass the costs of higher tax compliance on to the consumer at a later stage, said the report by Morgan Stanley.
“The impact, if any, on underlying inflationary pressures is likely to be transitory. The final impact will depend on the trends in aggregate demand and output gap after the implementation of GST,” the report on implications of GST noted.
On the growth front, the financial services firm said it does not expect a front-loading of consumption that happened in other countries that implemented GST, since tax rates are not rising meaningfully.
However, the report said there are still a number of uncertainties related to the impact on the corporate sector, particularly small and medium enterprises.
The impact of GST rates is likely to be positive for consumer staples and media, and negative for airlines and oil and gas, it noted.
For auto, hotels and telecom sectors the impact is likely to be neutral or marginally negative, while for Cement and Steel, it should be marginally positive, it added.
The GST Council will meet on June 3 to resolve the outstanding issues of deciding on tax brackets for remaining six categories – footwear, pearls & precious metals, `beedi’, textiles, biscuits,and agricultural machinery.
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