Proposed GST rates suggest limited impact on most sectors

Multiple GST tax slabs are "perhaps necessary" in India given the wide disparity in consumption levels and they are likely to have limited impact on most sectors, says a report.

A large number of tax slabs agreed upon by the GST Council may however dilute some of the benefits of the GST system, but preliminary understanding of the proposed tax rates suggests broadly neutral impact for sectors, said the report by Kotak Institutional Equities.

"The structure aims to minimise the impact on CPI inflation and revenues of governments as the proposed GST rates are similar to current 'overall' rates for most goods," the report said, adding that "hence, we see limited impact on overall government revenues".

The GST Council yesterday 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.

"We estimate 15-25 bps impact on inflation from higher tax rates on 15-20 per cent of the CPI basket (including some services) with no impact on around 50 per cent of the CPI basket (food, education, healthcare) which are zero-rated and the rest with broadly unchanged rates," the report said.

It further noted that the April 1, 2017 deadline for its implementation seems "achievable" and the possibility of timely implementation of the GST regime has strengthened.

The pace of decision-making is encouraging and April 1, 2017 target seems achievable. The next steps would be to pass the CGST and IGST bills in parliament and the SGST bill in state assemblies in their winter sessions.

Moreover, IT infrastructure will also have to be in place by December 2016 for testing and integration before next April.