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GST to boost GDP growth; positive for India's rating: Moody's

Implementation of the GSTwill be positive for India's rating as it will lead to higher GDP growth and increased tax revenues, Moody's Investors Service said on 2 July 2017.

"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.

The 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 mid-night -- the intervening night of June 30-July 1 -- 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 Goods and Services Tax (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 5, 12, 18 and 28 per cent.

Besides certain essential items like health care services, salt, unpacked food grains have been kept at zero rated.


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