Exclusive: Revenue secretary Hasmukh Adhia says inflation to fall by 2% post GST rollout

India’s overhauled tax regime is likely to become a reality in the next six weeks, with the finalisation of the crucial and the most anticipated ‘fitment’ of items and services under the four-broad slabs the Goods and Services Tax (GST).

The GST Council headed by Finance Minister Arun Jaitley in its two-day meeting in Srinagar fixed rates of nearly 500 services and 1,211 goods.

Certain pending issues related to rules and rates of six contentious items -- beedis and cigarettes, gold, footwear, textiles, bio-diesel and agricultural implements -- are likely to be sorted next month.

At an altitude of 13,500 ft above the sea level, in resplendent Gulmarg, Revenue secretary Hasmukh Adhia told Moneycontrol in an interview that inflation will not go up post implementation of GST from July 1 and that the government has taken special care to ensure that the prices don’t go up.

In fact, inflation will fall by 2 percent by the end of the financial year, Adhia said.

Here are the excerpts of the interview:

What are the key pending issues before GST rollout?

Adhia - I wouldn't say anything is pending, but I would say government has to reach out to trade and industry and also the Central machinery and state government officials are explaining the benefits and procedures under GST in town hall meetings. We need to accelerate this. The second most important challenge for us is consumer education because we have taken care to ensure that the average tax incidence on commodities do not go up even as the headline rate may go up. There may be some traders who will try to tell the consumers that consumers have changed the GST rates and you will have to pay more. Consumers need not be charged more in all cases even though the headline rate may go up. We need a lot of consumer education for that.

Why couldn’t the government reach consensus on deciding the rate of gold under GST?

Adhia-There was a shortage of time. We first wanted to arrive at a unanimity on 95 percent of the items on which there is not much of a difference of opinion, so we could finish them early. We decided to keep some of the main issues where lot of people have lot of things to say, such as a cess on beedi or gold and jewellery sector. These are the things that we will be deciding in a separate meeting. But the main achievement now is we have been able to inform people about the tax rates of many of commodities except these six.

Now that rates have been announced for most of the goods and services, how will it affect inflation?

Adhia- I don't expect that inflation will at all go up because of GST. It can happen because of other factors. We have taken special care to ensure that the inflation does not go up. Now that the rates have been decided, according to our internal estimates, inflation should come down by 2 percent. That is how we have managed to keep our CPI (consumer prices index)/inflation basket under control. When GST is implemented, there would be some issues because compliance is not an easy thing but we do hope we will get it as soon as possible may be atleast by the end of financial year.

The GST Council has brought down rate of many commodities and some services. How will it impact the revenue of government?

Adhia- We have reduced the rates of many items, we have put some items in exemption. Our estimate is revenue loss on account of this will be more than offset by the revenue gain which we gain because of better compliance.

The initial estimate for the compensation cess was Rs 50,000 crore. Now what is the estimate of compensation cess that you need to raise from July-March?

Adhia- We have not made the exact estimate of cess revenue as of now. Roughly we would think that whatever compensation is required for current year, it would be made good from the cess income which we will get this year and cess tables have been arranged accordingly. That's why we have tried not to reduce rates of even small cars. Cess on small cars have been capped because there is an existing incidence on them. So we didn't want to lose some revenues there.

Decoded: What does GST mean for you?

Rs 50,000 crore was an estimate we did for 2015-16. It would be a different estimate for 2017-18, which we are yet to make. But we have done rough calculation and we will have no problem.

How soon do we see setting up of anti-profiteering machinery?

Adhia-We will try to set it up as early as possible or we will try to identify an agency which will do it. We are working on it. But the issue is even if it is set up after 3 months it doesn't matter because if anybody has done profiteering, the books will speak for itself. So we can do a post mortem of those cases and we can take care of that. But our first attempt will be that we will try to have consultation with the trade and industry and request them to cooperate with us. We will urge the big corporates that in the interest of smooth implementation of GST, let them not increase any rates now.

As we are nearing the rollout of GST, what would be your message to the industry?

Adhia- We will be having consultation with the industry. So far we have not had discussion on anti-profiteering. My message to them would be, the trade and industry has been asking for GST, now that the government has made it possible to bring in GST so early, then the trade and industry should unite and they should watch each other and cooperate in this venture. They should not raise the price of any commodity or services for the time being.

How prepared is GSTN for a rollout from July 1?

Adhia- I reviewed GSTN (Goods and Services Network) work last week and I had a long presentation and discussion with Infosys which is the managed service provider for GSTN. They are very well on track, but inspite of that we are keeping a watch. We are having weekly meeting. In the next meeting on June 3, the GST Council will also get a presentation on where do we stand.

GST rates are here! How it will affect your restaurant bills

What about data privacy?

Adhia- There is absolutely no question of privacy being compromised in this. All tax systems today are being maintained by managed service providers who are private entities. We have a definitive secrecy agreement signed with managed service providers. There will be no question of breach of privacy in this venture. Nobody needs to be worried about it, we are taking care.

shreya.nandi@nw18.com