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Indian GST To Boost Nation's Growth, Says Fitch

by Mary Swire,, Hong Kong

10 August 2016

Fitch Ratings has said the passage of a long-awaited Goods and Services Tax (GST) bill in India is an important reform, which will remove barriers to trade, improve economic efficiency, and lead to higher growth in the long run.

The ratings agency said parliamentary approval sends a further positive signal of the Government's ability to enact major reforms following the passage of a national bankruptcy law in May.

The GST Bill is a constitutional amendment, which will allow for a single national indirect tax to replace a myriad of state and national taxes. "This will result in a substantial simplification of the indirect tax system, leading to potentially significant productivity gains and boosting long-term growth," said Fitch.

It added, though, that "it remains to be seen... whether the introduction of a national GST will lead to a higher intake of tax revenue. This will depend on a number of factors, such as the level at which the tax rate will be set. The rate still needs to be decided by the GST Council, which includes representatives from the Ministry of Finance and each state government."

"The introduction of national GST, though positive from a longer-term economic perspective, should not have a substantive effect on the fiscal account in the short term," the agency said. "Passage of the bill is an important indicator of India's ability to push through transformative structural reforms."

"More broadly, the GST bill is part of an ambitious policy drive which includes a series of reforms. In addition to the GST and aforementioned bankruptcy law, the agenda includes liberalization of the foreign direct investment regime, financial and agriculture sector reforms, and changes to cut red tape and improve the efficiency of administration," the agency concluded.

TAGS: Finance | tax | investment | value added tax (VAT) | India | VAT legislation | law | goods and services tax (GST) | legislation | trade | services | Tax

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