Taking Stock of Five Years of GST
- Findings show that GST has lowered inflation of food items and raised inflation of non-food items.
- Revenue Neutral Rate: Revenue neutral rate (RNR) meaning is the rate of tax that allows the Government to receive the same amount of money despite changes in the tax laws. Specially to cover the loss due to giving Input Credit.
- The equation to calculate RNR is t=R/B, where
- t stands for the RNR.
- R is equal to revenues (both Centre and state) generated from existing sales and excise taxes, which will be replaced by the GST and
- B stands for the total tax base required for generating the required GST revenues.
- During the 12 months preceding GST implementation, the Consumer Price Index (CPI) inflation was 3.66%, while it increased to 4.24% post-GST in the next 12 months.
- However similar trends were seen all over the world such as in Australia, New Zealand, and Canada post introduction of their GST regime.
- RNR is supposed to prevent inflation, but this is not always accurate due to the difference in the weight of goods in the consumption basket and their contributions to indirect tax collections are not the same.
- Textbook microeconomics teaches us that market competition leads to lower prices. And when market power increases, prices increase, and profit follows.
- As Nobel Prize-winning economist Joseph Stiglitz opined, rising market power is bad for the economy as it raises economic inefficiency and lowers the economy’s resiliency.
Source The Hindu
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