Moody’s Investors Service on Thursday said that the Goods and Services Tax will not have any major impact on inflation, if the tax rates are within the revenue neutral band, and it will have a positive impact on the economy. However, the rating agency warned that other “controversial reforms” may witness a slower progress, reported PTI. The long-pending indirect tax reform was passed by the Rajya Sabha on Wednesday.
A revenue neutral band is a tax rate through which the states and the Centre do not suffer any revenue losses from moving to a new tax regime. A report of the Central government committee, under Chief Economic Advisor Arvind Subramanian, had calculated the revenue neutral rate under GST at 15%-15.5% and the consequent standard rate at 17%-19%, reported the LiveMint.
The agency said the short-term credit implications of GST will be “limited”, but in the medium term, it is likely to have a “positive” impact on the economy and revenues. Marie Diron, Senior Vice President of Sovereign Risk Group, Moody’s Investors Service, said the GST will simplify the tax regime and reduce corporates’ and the government’s tax administration costs. "This should improve compliance and raise government revenues.”