GST rate cut to weigh on India's fiscal consolidation efforts: Moody's

Global ratings agency Moody's on Monday said that the recent cut in goods and services tax (GST) rates on consumer goods will weigh on the Central government's revenue collections and fiscal consolidation efforts.

"We estimate revenue loss from the most recent tax cuts to be about 0.04 per cent-0.08 per cent of GDP annually," Moody's Investor Service said in a research note.

"Although the proportion of revenue loss is small, the vacillation in tax rates creates uncertainty around government revenue and comes amid persistent upside risks to its expenditures."

According to the note, the Central government had budgeted gross tax revenue growth of 16.7 per cent for fiscal 2019, which ends March 2020, and GST collections "will be an important driver of future government revenue because of a wider tax base and tax buoyancy".
 

"The government expects GST revenue to add up to an additional 1.5 per cent of GDP in the medium-term," the note said.

"Despite initial disruptions to the GST implementation, GST collection has increased since December 2017, but iterative changes to tax rates create downside risks to the target of Rs 7.4 trillion ($100 billion) for the full fiscal year."

On July 27, India's new lower GST rates on consumer goods ranging from footwear to washing machines took effect.

The tax cuts followed reductions in January 2018 and November 2017.