A study on Impact of Implementation of GST on Inflation in selected countries: An Intervention Model

Abstract

GST, also known as Value Added Tax (VAT), is a multi-stage consumption tax charged on value added at every stage of production. The manufacturer or distributor charges GST on its sales (output tax) and gets credit for GST paid on the purchases made (input tax). In India, the basic idea is to create a single, cooperative and undivided market which has a simplified tax structure that strengthens the economy. GST has been recommended by IMF for improving the efficiency of the tax system and for increasing the tax revenue in any country. Implementation of GST in over 160 countries has drawn the attention of various researchers towards the variable impact on inflation in their respective economies. The present study aims to evaluate the postimplementation impact of GST on inflation for eleven developing and developed countries. The study uses Intervention model to evaluate the post-implementation impact of GST on inflation in the short run and long run. Overall results showed that except for China, there was no significant evidence of increase in inflation after the introduction of GST both in the short run (one year) and in the long run (3 years). The study found that countries like Portugal and New Zealand experienced a significant drop in inflation after introducing GST.