Tax department to calculate GST's impact on inflation

The revenue department will work out GST's impact on inflation before the fitment committee starts fixing rates for various goods and services.

This is being done to minimise price rise once the new indirect tax regime is rolled out, officials said.

They said the department will work on an 'exempted list for both goods and services' and fix the majority of the items with high weightage in the CPI basket close to the current tax rate.

"The fitment of rates would be done in a way to ensure items which have more weightage in CPI basket are not affected. We will do internal calculation to make sure that rates do not affect consumer price index (CPI) based inflation," an official said.

The GST Council has already decided on a four-slab tax structure of 5, 12, 18 and 28%. In addition, a cess would be levied on demerit and luxury goods, the proceeds of which will be utilised to compensate the revenue loss incurred by states on roll out of Goods and Services Tax (GST) regime.

While the cess for aerated drinks and luxury cars has been capped at 15% over and above the peak rate of 28%, the cess on pan masala has been capped at 135% ad valorem.

Tobacco cess will be capped at a combination of Rs 4,170 per 1,000 sticks or ad valorem of 290%. Cess on coal would be at Rs 400 per ton. A final call on levy of cess on each item will be taken by the GST Council at a later date.

The official said that if the revenue accruing from levy of cess falls short of the amount required to compensate states, then the Centre will borrow funds from the exchequer.

"To repay the additional fund which would be borrowed from the exchequer the cess can be continued for sixth year if the GST Council decides," the official added.

All existing cesses, apart from the environment cess and the national contingency and calamity duty (NCCD), will be abolished under the GST regime.