VAT not inflationary so far: Shome

Partharsarthi Shome, advisor to the finance minister, today said the government has not observed any inflationary pressure due to the introduction of value added tax (VAT) by majority of states, but added a word of caution that the new tax could lead to price rise if manufacturers do not pass on benefits of input credit to the next stage.

He also cleared the confusion relating to maximum retail price (MRP), stating that MRP is inclusive of VAT except in cases of pharmaceuticals.

"The finance ministry has not seen any inflationary pressure due to VAT," Shome said, but added that "if manufacturers do not pass benefits of input tax credit to the distribution stage, VAT could increase prices."

Inflation based on the wholesale price index fell by 0.24% to 5.67% for the week ended April 30 after rising for four consecutive weeks.

Just before implementation of VAT on April 1, the inflation rate stood at 5.05% during the week ended March 26, and rose to 5.26% for the week ended April 2, 5.48% for week ended April 9, 5.64% for week ended April 16 and 5.91% for week ended April 23.

Ramesh Chandra, secretary of the empowered committee on VAT, had earlier said that all increase in prices after April 1 cannot be linked to VAT as there were other factors like surging oil prices leading to inflation.