GST adoption could raise India's GDP to over 8%: IMF

Posted by Daily Shipping Times on 27-02-2017        Tweet

WASHINGTON: The adoption of the GST could help raise India's medium-term GDP growth to over eight per cent and create a single national market for enhancing the efficiency of the movement of goods and services, the IMF said recently.

At the same time, the International Monetary Fund (IMF) also expressed concerns over the implementation of the Goods and Service Tax (GST).

"Although some uncertainties remain around the design and pace of implementation of the GST, its adoption is poised to help raise India's medium-term GDP growth to above 8 per cent as it will create a single national market and enhance the efficiency of intra-Indian movement of goods and services," the IMF said in its annual Country report on India.

The IMF said larger than expected gains from the GST and further structural reforms could lead to significantly stronger growth, while a sustained period of continued low global energy prices would also be beneficial to India.

Noting that India's tax revenue-to-GDP ratio (at around 17 and a half per cent) remains considerably below than its emerging market peers, the IMF said the implementation of a robust GST should be a key priority given its growth-enhancing effects.

"The GST should have minimal exemptions, uniform cross-state rates, and as few tax rate tiers as possible," it said.

"The GST would provide for a significant improvement over the current indirect tax system. Tax reform priorities going forward include continuing the phased reduction of the corporate income tax rate from 30 to 25 per cent over four years, coupled with a simultaneous reduction in tax deductions," it said.

The GST replaces a plethora of cascading Center, State, Interstate and local taxes with a single, nationwide, value-added tax on goods and services.

By subsuming most of the existing indirect taxes, such as excise, sales and services levies, the indirect tax structure of the Country will become less complex and the cost of doing business will decline.