Goods and Services Tax (GST), which aims to simplify indirect tax regime, will be a ‘game-changer’ for the country and its implementation is likely to take place from April next year.
According to Japanese financial services major Nomura, GST is a game-changing indirect tax reform and its implementation will be positive for long-term growth.
“While short-term macro-economic implications of GST should be mixed, longer term, implementation should lift growth and enable greater general government fiscal consolidation,” Nomura said in a research note today.
While the government has been trying to implement GST for the past five-six years, it has never been so close, Nomura said, adding “political consensus now seems to be changing in favour of GST and we expect it to become a reality soon.”
The global brokerage believes, apart from simplifying the indirect tax structure, the GST should help to create ‘One’ India by eliminating geographical fragmentation.
GST is facing hurdles in the Upper House (where the ruling NDA government is in minority). “We expect these hurdles to be cleared soon and implementation to take place from April 2017,” Nomura said.
While the fine print of GST is still awaited, Nomura’s sector impact analysis suggests implementation of GST will be generally positive for consumption-related sectors (like auto, consumer durables and FMCG) and cement, given the potential reduction in tax incidences.
For sectors like utilities and pharma, GST implementation will have a ‘neutral to negative’ impact, while the services sector is likely to see a negative impact from higher tax burdens, it added.
The Constitution amendment Bill for roll-out of GST is pending in Rajya Sabha for a long time and the government is keen to ensure its passage.
The Goods and Services Tax seeks to bring a uniform tax structure subsuming a number of imposts and the government claims that it will help add 1 to 2 per cent to the country’s GDP.