GST positive for India's credit profile, will boost tax compliance: Moody's

The Goods and Services Tax (GST) regime is positive for India’s credit profile as it will improve tax compliance and increase government revenue, said global ratings agency Moody’s on Sunday. It will also enhance the country’s attractiveness as a foreign investment destination, it added.

The GST regime came into force at midnight on July 1, 2017.

William Foster, vice-president, Sovereign Risk Group, Moody's Investors Service, in a statement said that GST would support higher government revenue generation through improved tax compliance and administration. It would be positive for India's credit profile, which is constrained by a relatively low revenue base, Foster said.

The improvement in tax compliance will be driven by incentivisation of tax credits and greater ease of compliance through the usage of a common and shared IT infrastructure.

In November 2016, Moody's had affirmed the Government of India's Baa3 issuer and senior unsecured ratings and maintained the positive outlook on the rating.

GST would bring down the overall cost of compliance with simplified tax rates and a uniform system across the country, the ratings agency said, adding that the net impact of GST on government revenues would be positive.    

Over the medium term, the GST will contribute to productivity gains. It is expected to boost economic growth by improving the ease of doing business and unifying the national market, Moody’s added.

GST is expected to be a destination-based tax that should replace the current central taxes like excise duty, service tax, additional Customs duty, Special Additional Duty of Customs, and central and local state taxes.

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