Does GST Affect the Prices of Goods and Services?
Theoretically, GST doesn’t have much effect on the inflation rates, however, it may result in the increase or decrease of prices of certain goods and services. The government calculates the revenue-neutral rate (RNR) before implementing the GST rates on any goods or services. However, RNR is a calculative method and may lead to an up and down in the price of goods. The effect of GST on the prices of goods and services depends more on the structure and design of the tax. Thus it can be said that the change in GST rates does not have a considerable impact on the up and down in the prices of goods and services.
Impact of GST on Inflation
GST was introduced in India to waive off indirect taxes on all goods and services and introduce a single direct taxation system, which will lower the prices of essential goods and services. But it seems like it didn’t happen, as of now in 2022, it’s more than 5 years after the launch of GST in India. Within 1 year of the launch of the GST, the CPI inflation increased from 3.66% to 4.24%. However many economists believe that an increase in the CPI in the initial phase was obvious and it aimed to maintain inflation rates for the long term.