The US ratings agency said that over the medium term, GST will contribute to productivity gains and a higher GDP growth by improving the ease of doing business, unifying the national market and boosting India’s attractiveness as a foreign investment destination.
The just effected Goods and Services Tax (GST) regime in India is positive for the country’s credit profile as it would increase government revenues through improved tax compliance, US ratings agency Moody’s said on Sunday.
“It (GST) will 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,” Moody’s Investors Service vice president (Sovereign Risk Group) William Foster said in a statement.
“We expect improved tax compliance to be driven by: (1) incentivization of tax credits in a GST system; (2) greater ease of compliance through usage of a common, shared IT infrastructure between the central government and the states; and (3) a reduction in the overall cost of compliance from simplified tax rates, uniform across the country,” he said.
“We expect the net impact of GST on government revenues to be positive,” he added.
Over the medium term, the American agency expects that the GST will contribute to productivity gains and a higher GDP growth by improving the ease of doing business, unifying the national market and boosting India’s attractiveness as a foreign investment destination.
GST, which came into effect from July 1, will replace 17 taxes and 23 central and state cesses into a single national tax. The movement of goods will become much simpler across the country and may become cheaper, replacing the current system, where a product is taxed multiple times and at different rates.
At the state level, the taxes that GST will subsume include state cesses and surcharges, luxury tax, state VAT, purchase tax, central sales tax, taxes on advertisements, entertainment tax, all forms of entry tax, and taxes on lotteries and betting.
Central taxes being replaced by the GST are service tax, special additional customs duties (SAD), additional Excise duties on goods of special importance, central excise, additional customs duties, excise on medicinal and toilet preparations), additional excise duties on textiles and textile products, and cesses and surcharges.
There are four tax slabs of 5, 12, 18 and 28% giving India’s GST a multiple rate structure, unlike elsewhere, which could pose challenges in implementation. Besides, this destination tax has a dual jurisdiction system of both the Centre and the states, which could pose further hurdles to its smooth administration.
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