According to the Development Bank of Singapore, the country need not to be worried from the new taxation regime as basic or essential items have been placed in zero- rated or exempted category. So, the economic impact of new Goods and Service Tax (GST) will be inflationary with little or less influence.
The new GST Regime is going to roll-out from 1st July and will replace complex taxes such as service tax, excise, Value- Added Tax (VAT) and so on. It will make the country into one common unified market.
According to The Development Bank of Singapore (DBS) said in its economic report on new indirect taxation regime is “likely to rise mainly on selected service sector categories” after the implementation of GST.
Bank said that, “(And) even if price increases lift these service indices by 10 percent, headline Consumer Price Index inflation will only rise by 20 basis points,” The Bank also supposed that there will be cut in inflation rates by 20 to 40 basis points in coming year if the manufacturers and producers are willing to pass the benefits in partial or full form.
According to the Bank, Inventory clearances were observing that the prices of several products such as electronic items, white goods, cars and bikes will fall down before the implementation of GST Regime as major industries are trying to clear their available stock. All these sectors are providing discounts and offer to clear their existing stock and they might have to suffer losses due to new GST Regime.
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The bank also mentioned that, “the economic impact of demonetization reduced the Gross Domestic Product (GDP) growth to 6.1 per cent year-on-year in first quarter of 2017, down from 7 per cent in the fourth quarter of last year, and the resultant disinflationary pressures had lowered core inflation from 5 per cent in January 2017 to 4.3 per cent by May 2017.”
The bank said It is anticipated that the growth will be recovered only in a modest way. The Bank said that “We look for real GDP to rise to 7.3 percent in FY 2018 from 7.1 percent in FY 2017,”. It is expected that food prices will not get changed even the base prices are waived off from the July.
Supply of the products is sufficient in the amount which includes administrative measures and a slight increase in minimum support prices (which in the past marked a floor for ex-farm prices). The seasonal shoot up in food prices in summer season is missing in this year.