New Goods and Services Tax structure may be non-inflationary, says Citibank report

The new Goods and Services Tax structure may be 'non-inflationary' as most of the items in the Consumer Price Index basket will be taxed at a rate highly close to their current levels, says a Citigroup report.

The GST Council has agreed on a 4-tier GST tax structure of 5, 12, 18 and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

According to the global financial services major, almost 50 per cent of the CPI basket including food grains will continue to be out of the tax net (0 per cent tax), while four 'sin' goods (tobacco, pan masala, aerated drinks and luxury cars) will be taxed at their present rates which are much higher than 28 per cent.

"New GST structure likely to be non-inflationary," Citigroup said in a research note, adding, "it appears that most of the items in the CPI basket will be taxed at a rate which is very close to their current levels".

According to Citigroup, even if some of the 'services' move to 18 per cent tax bracket (from 15 per cent), it is not likely to stroke inflationary consequences if the tax pass-through is smooth.

On the other hand, given that tax rates will be mostly unchanged, the positive growth impact will be felt only through better tax efficiency, the report added.

The report noted that the non-inflationary bias drove the GST rate consensus and bodes well for the introduction of new GST rates from April 1, 2017.

"An early consensus over this complex issue opens up the possibility of further GST legislations being passed in the winter session of parliament and introduction of new GST rates from April 1, 2017," Citigroup said.

Meeting the April 1, 2017 timeline of GST rollout is now going to depend on technology preparedness and familiarization of the new GST structure among both the tax payers and tax collectors, it added.