What is GST, Inflation and how both are related to each other?

Updated: Dec 20, 2019

GST(Goods and Service Tax):

  • GST is the federal sales tax imposed on most of the products and services sold for domestic consumption.

  • The businesses adds the GST to the price of the product, and the customer who buys the product pays sales price plus GST.

  • The GST paid by the customers are remitted to the Government by the businesses selling goods and services.

  • The government uses the revenue from GST for various purposes like laying roads, investing in technology, medical programs, etc.,

  • The countries using GST have a single-unified tax system where there is single-tax throughout the country. The purpose of GST is to eliminate double taxation.

  • Only a handful of countries like Brazil collects double tax like state-level sales tax and federal-level sales tax.

Inflation:

  • Inflation refers to an environment of rising prices of goods and services in an economy.

  • The rise in price and inflation decreases the purchasing power of the customer. Since the value of money defines the purchasing power of an individual, rise in inflation can also be seen as decrease in the value of money.

  • Inflation can be referred to as "cost of living" in common terms.

Is GST responsible for Inflation?

  • The main intention of GST is to bring down the cost of final product or services by reducing the taxation, benefiting the customer. However, some businesses try to benefit from GST by increasing the price of the product that are taxed low. Also they are responsible for passing the tax increase faster than the tax cuts to the customers.

  • The violation can be prohibited at larger business levels. But the small businesses are major reason for increase in price of the products and services which in turn pay the way for inflation.

  • To prevent this, anti-profiteering rule has been introduced against GST violation in any form. This rule has been successfully introduced in many countries like India, Australia, New Zealand, Malaysia and prevented inflation.

  • After implementing GST, there would be a slight increase in inflation for short term but in the longer run it could be dealt for the benefit of everyone .



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