Question

GST minimizes the the tax impact on inflation.

• A. True
• B. False

Answer 1

The correct option is A True

India implemented GST in July 2017. The inflation cycle turned from July 2017 and annual growth in CPI reached a 17-month high of 5.21% in December 2017. It has continued to hover above the 4% mark in the subsequent period. Purely based on numbers, GST seems to have had an inflationary impact on India.

There are two ways in which GST could have caused a spike in inflation: by raising the rate of tax on goods and services, and bringing within its coverage business activities outside the tax net earlier. The latter would push up inflation as any tax incidence on such businesses is bound to be passed on to consumers in terms of higher prices. In a country like India, with a huge informal sector, successful implementation of GST may have brought a lot of non-tax paying firms and transactions under the tax net.