A day after the Centre met with its July 1 deadline and rolled out the goods and services tax (GST), Moody’s Investors Service said that the implementation of GST will be positive for India’s rating as it will lead to higher gross domestic product (GDP) growth and increased tax revenues.
“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,” said William Foster, VP sovereign risk group, Moody’s Investors Service.
While Moody’s currently has a ‘Baa3’ rating on India with a positive outlook, Moody’s said that the development is positive for India’s credit profile. Stating that GST will support higher revenue generation for the government, through improved tax compliance and administration, Foster said that these two will in turn be “Positive for India’s credit profile, which is constrained by a relatively low revenue base.”
The rating agency further said that it expects improved tax compliance driven by factors such as incentivization of tax credits in a GST system; 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.
While there are some concerns in the market that the roll-out of GST will lead to some disruption in the short term, Foster said, “We expect the net impact of GST on government revenues to be positive.” GST will remove excise duty, service tax and VAT and transform India into a uniform market for seamless movement of goods and services.