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GST rate hike could lead to high inflation, says SBI report ahead of council meet next week

FE Online
gst, goods and services tax, indirect tax, taxes, revenue, indian economy

Amid growing buzz that the GST council is all set to hike rates in its council meet on December 18th, SBI has cautioned against an upward revision citing risks to inflation. "We believe that any upward revision in GST rate and inclusion of excluded item will pose upside risks to inflation and downside risks to already fragile growth," SBI said in its Ecowrap report, adding that increasing GST rates at this juncture will be self defeating and if compliance does not improve, it is likely that GST collections could actually show minimal improvement, as happened in the past, when rates were cut.  Notably, basic goods of household necessities such as edible oil, sugar, spices, tea, and coffee, may soon get costlier as the GST council is likely to increase the base rate of 5 per cent, according to media reports. 

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The GST council has kept the items of daily needs at a minimum tax slab of 5 per cent, which could now be increased to boost the government's indirect tax revenue. It is believed that the GST rate slabs can be increased from 5 per cent to 8 per cent and 12 per cent to 15 per cent, PTI reported citing sources as saying. However, finance minister Nirmala Sitharaman has said that there is no discussion on the issue as yet. "The buzz is everywhere except in my office. I have had no conversations on the GST Council meeting with my team yet," Sitharaman said in a press conference yesterday. 

The SBI report added that that there could be methodological biases in consumer price inflation estimation by the Central Statistical Organisation (CSO) which is creating uncertainties in markets and policy decisions. "Besides the risk of inflation due to increased GST rates, our estimate suggests that the exorbitant increase in telecom tariffs (almost 40 per cent in some of the cases) could technically result in 40-50 bps increase in headline inflation," the report noted.