GST Benefit to Show After Long Term: Moody’s

Mumbai: India’s all industrial and retailer sectors are gearing up for the implementation of GST from July 1, 2017. Finance Minister Mr. Arun Jaitley will deliver a historic speech on midnight of 30th June to rollout the much-awaited tax reform.

Referring to the scheduled rollout of GST on July 1, rating agency Moody’s says teething issues in implementing the change in a vast country like India will delay the benefits of the new tax regime reaching its intended beneficiaries. It further says that the corralling of rates into four buckets of 5 per cent, 12 per cent, 18 per cent and 28 per cent has itself been a source of confusion. For instance, renewable energy-based devices attract a 5 per cent tax, but inputs into production such as solar cells and modules are bunched in the higher bucket of 18 per cent. While acknowledging the possibility of further revisions by the GST council, it says large-scale changes to the current system are unlikely.

The World Gold Council (WGC), which analysed the implications of GST on gold, said the effect of the new tax is very complex. “The devil is in the detail when it comes to tax. While the GST rates have been announced, there are several areas where greater clarity is required,” it said. The headline gold rate of 3 per cent on the face of it represents only a modest tax increase. But on deeper examination, the effect of the tax is more complex, it says. For instance, there are two important GST rates which will affect the industry. The first is the 3 per cent tax on gold products, such as jewellery. In addition, there is an 18 per cent tax on services that will apply to firms and individuals providing manufacturing services across the gold supply chain.

Taking these two rates into account, the council’s analysis of the supply chain indicates the effective tax rate consumers face could increase to between 13.5 and 14 per cent. But we often here that gold is taxed at 3 per cent under GST. The council also talks about the possibility of some consumers and jewellers trying to conduct transactions under-the-counter so that these do not get captured by GST.

Moody’s is, in fact, showing the thumps down, saying the impact of GST will be neutral and any positive result may be expected only over the long term. Worse still, it says the current efforts are unlikely to rescue the Indian economy from growth deceleration, which is heightening the short term risks. These problems in the economy are being obscured by the euphoria about the GST roll-out.