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

The standard tax rate near 18 percent 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) said.

However, finalisation of the tax rate depends much on classification of goods and services under the exempted category and also under nominal tax rate which may be 1 percent, CAIT said in a statement.

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

However, it may be noted that goods placed under 5 percent are largely used as raw material for finished goods and have been attracting excise and service tax so far with no advantage of input credit for MSME.

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.