Moody's VP (sovereign risk group) William Foster says GST implementation will lead to higher GDP growth and increased tax revenue for the government
New Delhi: Implementation of the goods and services tax (GST) will be positive for India's rating as it will lead to higher gross domestic product (GDP) growth and increased tax revenues, Moody's Investors Service said on Sunday.
"Over the medium term, we expect that the GST will contribute to productivity gains and higher GDP growth by improving the ease of doing business, unifying the national market and enhancing India's attractiveness as a foreign investment destination," Moody’s VP (sovereign risk group) William Foster said.
GST will also support higher government revenue generation through improved tax compliance and administration. “Both will be positive for India's credit profile, which is constrained by a relatively low revenue base," Foster said.
Moody’s has a “Baa3" rating on India with a positive outlook. The biggest tax reform in independent India was rolled out at the stroke of the midnight—the intervening night of 30 June-1 July —by President Pranab Mukherjee and Prime Minister Narendra Modi.
The US-based agency expects improved tax compliance to be driven by incentivisation of tax credits in a GST system. It would also usher in greater ease of compliance through usage of a common, shared IT infrastructure between the central government and the states; and a reduction in the overall cost of compliance from simplified tax rates, uniform across the country.
"We expect the net impact of GST on government revenues to be positive," Foster said.
The GST will remove plethora of taxes like excise, service tax and VAT and transform India into a uniform market for seamless movement of goods and services. In the GST regime, goods and services will be taxed in the either of 0%, 5%, 12%, 18% and 28% brackets. Besides certain essential items like healthcare services, salt, unpacked food grains has been kept at zero rated.
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