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Will GST lead to long term economic growth?

Monday, July 03, 2017
By Dominic Rebello

The landmark tax reform on Good and Services tax (GST), which will simplify the tax structure was ushered in by the government on the midnight of June 30. While Indian businesses and consumers are still trying to figure out the exact impact of this indirect tax law on them, experts believe that this will change the face of Indian economy over the long term.

“GST is a part of a large numbers of steps being undertaken by the Government of India to transform and improve India’s soft Infrastructure . This is the latest project undertaken by the Government of India between Centre and State Governments jointly. GST implementation will catapult India’s tax Infrastructure into world’s leading in one single step. It is expected to improve ease of doing business and is excepted to be much easier for tax payers as compared to current multiple tax systems encompassing state, centre and city based taxes,” said Ashishkumar Chauhan, MD & CEO, BSE.

Vijay Kalantri, President, All India Association of Industries (AIAI) said that roll out of GST is a landmark reform initiated by Prime Minister Narendra Modi. This will go a long way in giving impetus to growth which will add to start with 5.5% GDP and 2-3% in the near future, he added. Kalantri further said, GST will simplify & rationalize tax structure and will spur investment from India and overseas, however there should be only 2 slabs and highest rate should not be more than 18 per cent.

Of the many benefits that GST offers, better transparency, the potential to improve  ease of doing business ranking and adding 1-2% growth in GDP growth are some of the many advantages of this crucial Act. The one nation one tax slogan of the government will lead to simplicity in the tax structure. What the GST effectively does is to combine over 17 different central and state level taxes into the GST. The GST subsumes, inter alia, excise duty, VAT, central sales tax, service tax, entry tax, Octroi duty, entertainment tax, CVD, SAD etc. Thus, instead of multiple registrations, businesses  have one centralized registration for GST.

“GST is a historic tax reform, which will create a single national market by replacing multiple indirect taxes levied at different levels.  With this new tax regime expected to add 1-2 percentage points to growth, it is indeed a game changing reform,” said Arun Kumar – Chairman and CEO at KPMG in India.

GST will set the stage for increased digitisation, remove the cascading effect of taxes and enhance logistical efficiency in supply chain management.  Given its in-built incentive to pay tax, it marks India’s most comprehensive push towards formalisation and organisation of its economy, he added.

The realty industry expects the GST to be a game changer for the industry but awaits clarity in certain areas of the Act.

“Goods and Service Tax (GST) is a forward-looking tax reform on part of the government. There is no doubt that it will be a game-changer for Indian industry, bringing in a more comprehensive and uniform tax structure that will ensure greater transparency in the economy. However, there are certain areas in which we would like the government to intervene at the earliest and provide clarity on the same,” said Surendra Hiranandani, Chairman & MD, House of Hiranandani. While the intent is to streamline the tax administration and bring more businesses in the tax net, it is unlikely that GST will have any impact on property prices, he added.

"The anti-profiteering clause introduced in the GST law, will make it mandatory for development firms to pass on the benefits of the input credits to the consumers. This input credit will be given on successful completion of each stage of the project. However, development firms need to pass on the benefits to the consumers. Thus, it is expected that in the next 2-3 quarters, prices will come down marginally. In case of ready properties, the developers won't be able to pass on the tax burden. However to compensate on that they might increase the per square feet price,” said Samir Jasuja, founder and CEO at PropEquity.

Devendra Kumar Vyas, CEO, Srei said, “GST will bring in transparency and seamlessness of transactions. India having federal democratic structure had multiple States and Union Territories based indirect taxes with certain additional Central levies. This lead to multiplicity of taxes and a cascading effect which lead to Tax on Tax. This multiplicity has been a contributing factor to fillip inflation over a period of time. In order to curb such cascading effects, the amalgamation of taxes was eminent.”

Overall, GST is a positive step for our nation. we need to support this initiative and work towards making a newer and better India,” he added.

GST to boost GDP; positive for rating: Moody's
Implementation of the GST will be positive for India's rating as it will lead to higher GDP growth and increased tax revenues, Moody's Investors Service said yesterday. "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.

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