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Inflation to see a dip under GST regime: Arvind Subramanian

Dilasha Seth/Srinagar 20 May 17 | 02:40 AM

Arvind Subramanian Chief Economic Advisor

Healthcare and education should be brought under the tax net under the goods and services tax regime over time, said chief economic adviser Arvind Subramanian. He told Dilasha Seth in Srinagar on the sidelines of the fourteenth GST Council meeting, next to Dal Lake, that inflation will see a decline under the current rate structure. Edited excerpts:

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You had said in your report that at 18-20% GST rate, inflation will be zero. What is your forecast on inflation in the short run under the current GST structure with the highest slab going up to 28%?

The incidence of tax under the GST structure proposed now will be in fact, slightly lower than the current tax structure. The inflation concern no longer exists. We will see a slight dip in prices. The way new rates are done, the guidance has been that after GST the tax incidence should not be higher than currently for both goods and services. Broadly the incidence will be slightly lower.

What impact do you see of GST on the economic growth during the first year of implementation?

It is going to be difficult to calculate the assessment of GST on GDP at the moment.

In your report, you made a case for bringing healthcare and education under the tax net. However, as of now, the Council has decided to continue to exempt these.

It has so decided at the moment but at some point, these should be brought under the tax net. If you look at the data of who consumes education and health, it is mostly private, and mostly by the higher earning group of the population. Normally, you would not exempt such services because the sense is that they are consumed by the poor but the data shows that is not the case. So, the Council should decide to put health and education out of the exemption list at some point.   

How feasible is July 1 deadline now for the GST rollout?

We are certainly closer to the July 1 implementation of GST after the just concluded fourteenth GST Council meeting. Almost all rates are set and we are on the verge of implementation.

There are concerns over service providers not passing on the tax benefit under GST to consumers. How effective will the proposed anti-profiteering body be on the issue?

We will have to rely more on competitive pressure and on awareness of consumers. The anti-profiteering body is basically a symbolic recognition for creating awareness. It is not meant to be seen as a punitive measure but as a fallback one. Competitive pressure will do the work in most cases.

There are still concerns within the industry over GST. There is still lack of clarity over certain items including branded versus non-branded clothes and footwear.

I am sure the Council will address those concerns shortly.  

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