GST may not lead to inflation if tax rate is about 18%: CAIT

The standard tax rate near 18 per cent under GST will prove to be an ideal one and in all probability, will not stoke significant inflation as assumed by many, the Confederation of All India Traders (CAIT) on Sunday said.

However, finalisation of the tax rate depends much on the classification of goods and services under the exempted category, and also under nominal tax rate, which may be one  per cent, CAIT said.

CAIT national President BC Bhartia and Secretary General Praveen Khandelwal said under the current VAT regime, items placed under the the 5-per cent tax slab will be attracting standard rate of tax, which may be 18 per cent, and it is feared such a situation will lead to inflation.

However, it may be noted that goods placed under 5 per cent are largely used as raw material for the finished goods and have been attracting excise and service tax so far with no advantage of input credit for MSME (micro, small and medium enterprise).

Under GST, these will be placed under a higher slab and will be eligible for input tax credit for not just goods but services.

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

Stressing on the need for unification of taxes levied on goods and services, the functionaries said that for any business of goods trading, support of service sector is required since both compliment each other.

Both Bhartia and Khandelwal are of the view that major challenges will come from implementation and compliance since the GST tax structure is entirely based on e-compliance mechanism.