India closer to getting national sales tax

India’s Upper House of Parliament approved a Goods and Services Tax reform last week. The move is a step forward in creating a unified tax system across the country.

The new law could help boost India’s economy by as much as 2%, according to a statement made by Finance Minister Arun Jaitley in 2015.

“This is big news; the GST is being labeled as a ‘game changer’ for India,” says D. Asdhir, president and CEO of Excel Funds Management Inc. “It shows that the government is capable of implementing historic changes that will enhance growth and development in India even further.”

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The impact of GST reform is largely expected to support domestic consumption, a major component of India’s GDP. For example, a new tax rate (which is expected to be around 18%) could lower the cost of manufactured products, potentially leading to more Indians purchasing goods ranging from household appliances to motor vehicles.

E-commerce should also receive a lift, as state restrictions and levies are removed, predicts Excel Funds Management.

Additionally, GST could widen the tax base and improve fiscal management for the government, says the fund company. With a greater revenue stream, the current administration could continue to invest heavily in infrastructure, which has also been another key sector linked to India’s growth.

“We expect a fiscal boost, improvement in logistics for local companies leading to cost savings, and increased competitiveness in India’s manufacturing sector on the global front,” says Atul Penkar, head of offshore equities at Birla Sun Life Asset Management Company Limited.

For more on India’s tax reform, check out this Q&A about the sales tax.

Staff

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