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GST 2.0: Do Lower Tax Rates Translate into Lower Consumer Prices?

Author

Listed:
  • Mukherjee, Sacchidananda

    (National Institute of Public Finance and Policy)

  • Badola, Shivani

    (National Institute of Public Finance and Policy)

Abstract

The recent restructuring of GST rates (also known as GST 2.0) results in reductions in tax rates for many commodities. It is expected that the benefits of lower tax rates will be passed on to consumers through lower retail prices. In this paper, we examine movements in the average Consumer Price Index (CPI) for selected commodities over four months before the GST rate restructuring (pre-GST 2.0 period) and four months after the restructuring (post-GST 2.0 period). The initial signs of GST rate restructuring show that the extent of price adjustment varies across commodities. Most food items, household, and personal care products recorded increases in the CPI during the post-GST 2.0 period, indicating incomplete transmission of GST rate reductions in the essential commodity group. Conversely, several consumer durables, such as motor vehicles, bicycles, tyres and tubes, air conditioners, and some selected household appliances, experienced a decline in CPI values, suggesting relatively effective price transmission in discretionary and high-value goods.

Suggested Citation

  • Mukherjee, Sacchidananda & Badola, Shivani, 2026. "GST 2.0: Do Lower Tax Rates Translate into Lower Consumer Prices?," Working Papers 26/444, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:26/444
    Note: Working Paper 444, 2026
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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