Analysts thumbs up to GST law

MUMBAI: A day after the Rajya Sabha passed the much awaited GST bill, global rating agency Moody’s Investors service said its implementation will have no significant impact on inflation and is likely to have a positive impact on the economy and government revenue in the medium term. “GST will remove one hurdle to the smooth movement of goods and services and focus corporates’ location decisions on operational considerations rather than tax regimes. Over time, this should be positive for growth. Moreover, the simplification of the tax system that the GST introduction will bring about will reduce corporates’ and the government’s tax administration costs. This should improve compliance and raise government revenues,” said Marie Diron, senior vice-president, sovereign risk group, Moody’s Investors Service.

However, the rating agency warned that the GST could raise inflation if the cuts to prices from the removal of various taxes that GST will replace are not fully passed on to end consumers.

Echoing a similar view, analysts at Standard Chartered Bank said inflation is likely to increase in the initial years after implementation due to asymmetric price setting by companies. “Prices of manufactured goods are expected to decline eventually as a result of GST, with the effective tax rate likely to fall to 18-22 per cent from 22-24 per cent currently.

However, in the initial months after implementation, pass-through of cost savings by manufacturers may be limited as they adjust for higher compliance costs or try to improve profits,” Standard Chartered Bank said. Experts have opined that a GST rate higher than 20 per cent could adversely impact inflation and growth.