GST Council to walk a tightrope while deciding GST rate between 18-20%

The GST Bill has been passed in the Rajya Sabha and now it will go to the GST council for setting down the GST rate in consultations with the states.

The Council will now have to tread carefully after Finance Minister Arun Jaitley, while presenting the GST Bill in the Rajya Sabha, said the GST rate is likely to be between 18 and 20 per cent, as advised by the chief economic adviser.

As per economists, the GST rate of 18-20 per cent will cause mild inflation and if it is kept higher than 20 per cent, it will lead to high inflation.
"The more you move away from the standard rate of 20%, the inflationary pressures will rise. Inflationary pressures will depend on how the RNR (revenue-neutral rate, or the rate at which tax revenues will remain the same for Centre and states) is split between standard and low rate," Abheek Barua, chief economist at HDFC Bank, told ET.

"There will be mild inflation...services would become expensive," DK Joshi, chief economist at ratings agency Crisil, told ET, adding “the inflationary pressures will reduce in the medium term because of efficiency gains.

During the GST debate in the Rajya Sabha, former Finance Minister P Chidambaram said if the service tax rate is increased to 23-24%, it will lead to huge inflation and will lead to a backlash.

(Image: Reuters)