Can a rate decrease be inflationary?

Smooth move, Mr. Finance Minister. First, a casual mention that General Sales Tax (GST) would be raised by 100 basis points, then make an attenuating statement that the hike in the tax rate would be temporary, only until reforms in GST - read VAT - would be implemented.
Its a great way to buy time on a deliverable, which should have been achieved by now. For those that aren aware, VAT was due to be implemented by July 1, in accordance with the letter of intent signed with IMF. In his budget speech, however, Dr. Hafeez Shaikh announced the implementation would be deferred until October.
So far, political consensus has been eluding the government. First, it was the Sindh government playing the service tax card. Now, political opponents, PML-N and PML-Q, and also allies MQM have started speaking out against the all encompassing VAT.
The additional percentage point is projected to increase revenues by Rs30 billion in the first three months of FY11. Thats a healthy Rs10 billion bonus to the exchequer every month, over and above the monthly target of about Rs56 billion.
But here comes the interesting part.
When critics deemed the increase in tax rate an inflationary measure, Dr. Shaikh retorted that they must decide whether an increase in rates is inflationary or a decrease would have that affect.
From a textbooks perspective, Shaikhs statement may be right, but the remark really left the analysts scratching their head, wondering "Is this guy kidding or what?"
With an increase in the tax rate, prices of all goods that fall under the GST regime are automatically increased. The consumer has to pay a higher cost of acquiring the same goods, therefore, it is inflationary.
But prices will not decrease just because VAT will be implemented at a rate lower than GST, as Shaikh implied in his post-budget press conference.
Granted VAT in itself is not inflationary; it is essentially the environment that the regime is being implemented in, that leads prices higher. Vendors may price-in the 15 percent VAT to the consumer at every stage of the production process, because of the lack of documentation standards.
This will cause a substantially larger impact on prices the end consumer has to bear, until the time the introduction of a broad based tax that will incentivise economic agents - producers and consumers - to move towards a documented economy.
Clearly, for a man of Shaikhs academic and professional stature, the likelihood that VAT will be inflationary in present Pakistan shouldn be news. So why would he make such a statement?
Perhaps, he was just trying to capitalise on the short memory of the masses by implying that
ate decrease (through VAT) isn inflationary.
In three months time, VAT will be resold to the public as a relief measure, with a lower tax rate, that increases buying power.
How exactly will it affect the common mans pocket; one can be too sure until it actually hits the economy. Hopefully, it will pass away harmlessly just as the cyclone Phet left Karachi largely unscathed. But then again, there is hardly any saint whose presaged prayers would protect the economy from VAT.