What could be in store with GST rationalisation

As the US tariffs kick in and impact India’s trade with its largest export destination, the Goods and Services Tax (GST) Council took a timely decision to lower GST rates for a considerable number of items, to boost domestic demand.

- Sacchidananda Mukherjee

Lower GST rates are expected to be passed on to consumers in the form of lower prices, which will provide them with additional purchasing power.

Lifting domestic demand is likely to offset falling external demand for Indian goods. The course expected now is goods with new, lower prices will hit the market stacks once the stock of goods lying as inventories in different stages of trade/distribution is exhausted. It is expected that the Union government will soon notify the new tax rates under the CGST Act, and the states will follow with similar notifications under their respective SGST Acts.

The speed of adjustment of prices, with reference to the new tax rates, will vary from commodity to commodity, depending on the gestation period between purchase of inputs and sale of finished products and the size of the existing stock of finished goods.

It is expected that governments will allow transitional credit provisions for businesses to adjust to the difference in the tax rates between the new and old rate regimes on inputs and finished goods. This provision could help businesses accommodate the difference in the availability of eligible input tax credit (ITC) and output tax liability arising due to GST rate restructuring. If this provision does not take effect, it is unlikely that the prices of many commodities will fall soon.

A swift move can help businesses capitalise on the forthcoming festive season to boost demand. Consumers will be disappointed if prices do not reflect the reduced tax rates.