GST Bill a positive reform signal: Fitch
05/08/2016 12:45
Fitch Ratings, a global rating agency, has said that passage of a long-awaited goods and services tax (GST) bill is an important reform which will remove barriers to trade, improve economic efficiency and lead to higher growth in the long run.
In addition, 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 rating agency said.
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.
Fitch said that it remains to be seen, though, 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, it said.
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. India's fiscal balances are a weak point of the sovereign's credit profile, with both general government debt and the deficit well above its 'BBB' peer medians. Fitch expects the debt to reach 69.4 per cent of GDP and the deficit to fall to 6.8 per cent in FY17, it added.
Fitch affirmed India's "BBB-" rating with a stable outlook last month.
05/08/2016 12:45
In addition, 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 rating agency said.
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.
Fitch said that it remains to be seen, though, 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, it said.
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. India's fiscal balances are a weak point of the sovereign's credit profile, with both general government debt and the deficit well above its 'BBB' peer medians. Fitch expects the debt to reach 69.4 per cent of GDP and the deficit to fall to 6.8 per cent in FY17, it added.
Fitch affirmed India's "BBB-" rating with a stable outlook last month.
