A brief respite in retail inflation registered for July may not be of much assurance about price stability as another GST readjustment is threatening to push up prices of items of mass consumption. Retail inflation was steady in June, although well above the Reserve Bank of India’s tolerance limit for over six months. Inflation as measured by the consumer price index (CPI) was reported steady at an annual 7.03 percent in June, down by 0.1 percent from the previous month. The improvement, though marginal, was attributed to lower fuel and cooking gas prices, which offset higher services and food costs. The Reserve Bank has also been raising interest rates as part of its inflation management strategy. But Governor Shaktikanta Das has warned that inflation is unlikely to be brought within the mandated target, until at least the end of the year. It is against this setting that there is a move for further readjustment of the GST rates, which would warrant prices of items of daily use to go up further. It has now been revealed that the GST council may withdraw some more exemptions and raise the tax rates further to correct the remaining instances of inverted duty.
The decision by the GST council at its previous meeting had accepted a ministerial committee report on the correction of inverted duty and exemptions. As a result, pre-packaged and pre-labeled retail packs, including curd, lassi, and buttermilk, have since been brought under GST. The panel is currently further studying tax issues relating to casinos, online gaming, and horse racing, the conclusions of which are keenly watched due to the high interest in these activities. The earlier proposal was to levy a 28 percent tax on these activities, but the issue is being reviewed lock, stock, and barrel. Also attracting higher GST rates were hotel and hospital room rents while exemption given on services extended by RBI, IRDAI, SEBI, FSSAI, and GST was also withdrawn. All this will imply the inflation rates, but leaving a higher impact is the correction in the case of food and food-related items. While a GST rate of 5 percent was made applicable on branded cereals, pulses and flour when the new regime was rolled out, this was amended to tax only such items which were sold under registered brands on which enforceable right was not foregone by a supplier. However, soon rampant misuse of this provision by reputed manufacturers and brand owners was noticed, with the result that the GST revenue from these items fell significantly.
The group of ministers, who could not reach a consensus at their last meeting on the inverted duty structure, has the mandate to review various items to help minimise refund payout and review the GST exempt list to expand the tax base and eliminate breaking of an input tax credit. Under GST, a four-tier structure exempts or imposes a low rate of tax of 5 percent on essential items and levies the top rate of 28 percent on cars and demerit goods. The other slabs of tax are 12 and 18 percent.
