GST, demo to improve tax collection, broaden tax base: Moody's

Reforms such as Goods and Services Tax (GST) and demonetisation will improve tax collection and broaden the tax base in India overtime, Moody's Investors Service said today.

In a report on broadening tax base in Asia Pacific countries, Moody's said although there are uncertainties surrounding GST implementation and compliance, including the timely provision of input tax credit refunds, India's strong economic growth and stable fiscal regime should support the effectiveness of ongoing tax reforms in yielding gains.

The long-awaited, unfied GST on July 1 last year replaced a dual taxation model which involved multiple levels of central and state governments imposing taxes throughout the value chain. The 'one nation, one tax' was in making for over 17 years.

"The implementation of a GST came alongside a range of measures, including at temporary tax amnesty scheme, demonetization, and measures to strengthen tax administration and the ease of doing business, which will contribute to improving tax collection and broadening the government's tax base over time," Moody's said in the report.

The government, it said, in the Budget for 2018-19 introduced several additional measures to broaden India's tax base.

"These included a new long-term capital-gains tax of 10 per cent on equity investment profits exceeding Rs 1 lakh after a minimum holding period of one year, and a reduction in corporate taxes to 25 per cent from 30 per cent for companies with revenue of Rs 250 crore or below," it said. "The taxation structure for larger companies remains generally unchanged."