Moody’s Investors Service today said the GST implementation will be positive for the country’s economic growth without any significant impact on inflation, but cautioned that other “controversial reforms” may witness a slower progress.
The long-pending indirect tax reform — Goods and Services Tax (GST) Constitutional Amendment Bill was passed by the Rajya Sabha yesterday.
The passage of GST is in line with an assessment that progress in reforms will be gradual and dependent on ad-hoc political support, Moody’s Investors Service Senior V-P, Sovereign Risk Group, Marie Diron, said.
“In other reform areas, where and when there is some majority view in support of specific policies, reform measures may be implemented. More controversial reform areas are likely to see slower progress,” Diron said.
The GST reform has taken many years, under this and previous administrations and it has been possible as the political composition of the Upper House has shifted slightly, Moody’s said.
The rating agency said the short-term credit implications of GST for the sovereign will be “limited”, but in medium term it is likely to have a “positive” impact on the economy and government revenues.
“Over time, this should be positive for growth. Moreover, the simplification of the tax system will reduce corporates’ and the government’s tax administration costs. This should improve compliance and raise government revenues,” Diron said.
GST will have no significant impact on inflation, in line with the revenue-neutral framework, Moody’s said.
It, however, said that GST could raise inflation if the cuts to prices from the removal of various taxes that the indirect tax regime will replace are not fully passed on, while the implementation is fully reflected in retail prices.
Moody’s said it expects GST implementation by states will take place in the next few months.
“GST will remove one hurdle to the smooth movement of goods and services and focus corporates’ location decisions on operational considerations rather than tax regime,” Diron said.