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GST gains to be 'far less' than initially envisioned: Nomura

Monday, May 29, 2017

Gains from the goods and services tax (GST) in its current form will be "far less than initially envisioned" as the structure is fairly complex with multiple tax rates, says a Nomura report. The GST as proposed has a multiple rate structure as almost all goods and services have been classified into groups attracting GST rates of 5, 12, 18 and 28%, respectively.

In addition, four items (namely luxury cars, aerated drinks, tobacco and related 'paan' products) will attract separate cesses each. "The GST as proposed is fairly complex with multiple tax rates (across different categories and even within the same category) in order to minimise the inflation impact and due to political considerations," Nomura said in a research note.

It added that "this will reduce efficiency gains from having a simplified tax structure. We hope that, in coming years, the government will be able to work its way towards a more ideal GST". Under the goods category, petroleum products, alcohol, electricity, real estate and several subcomponents of food have been kept outside the GST ambit. Under services, health and education, amongst some other, have been excluded.

"While we are positive, we do believe that, in its current form, the gains from the GST will be far less than initially envisioned," the report noted. On GST and its impact on inflation, it said that though over the longer term GST is expected to be disinflationary, this trend might not get reflected in the near term.

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