The standard tax rate near 18 per cent under GST will prove to be an ideal one and in all probability, will not stoke significant inflation as assumed by many, the Confederation of All India Traders (CAIT) on Sunday said.
However, finalisation of the tax rate depends much on classification of goods and services under the exempted category and also under nominal tax rate which may be 1 per cent, CAIT said in a statement.
CAIT national President BC Bhartia and Secretary General Praveen Khandelwal said that under the current VAT regime, items placed under the 5 per cent tax slab will be attracting standard rate of tax, which may be 18 per cent, and it is feared that such a situation will lead to inflation.
However, it may be noted that goods placed under 5 per cent are largely used as raw material for finished goods and have been attracting excise and service tax so far with no advantage of input credit for MSME.
Under GST, these will be placed under a higher slab and will be eligible for input tax credit for not just goods but services.
In spite of all these mathematics, in initial days, there might be some inflation which will subside once the taxation system is duly adopted in its letter and spirit, the statement added.