Broking firm Edelweiss believes the proposed Goods and Services Tax will not materially impact inflation. GST will become effective from midnight today.
“A significant proportion (around 30 percent of CPI basket) of goods (mainly agri and allied items) and services (housing, education, transport and communication; around 15 percent of CPI basket) do not attract tax currently and will also be exempt/zero-rated under GST. Also, specified petroleum products and electricity (around 5 percent of CPI basket) are outside GST’s purview,” says the Edelweiss note.
In countries like Canada, Australia, Malaysia and New Zealand, the implementation of GST had led to a temporary spike in inflation.
“GST will lower logistics costs due to reduced transit time following elimination of multiple check points (octroi/state borders) and consolidation of warehouses. This will also lead to downward pressure on inflation,” says the note.
Also, the broking firm feels that the anti-profiteering clause will keep prices of goods and services under check as manufacturers/service providers will pass on lower tax benefits to consumers.
Availability of input tax credit will also offset the impact of higher tax rate on services, the Edelweiss note says.