Tax reforms, low fiscal deficit to expand revenue base in India: Moody's

Tax reforms are likely to expand revenue base in fast growing economies like India but they will be most effective when accompanied by lowering of fiscal deficit and effective management of expenditure, Moody's Investors Service said on Thursday.

It said most sovereigns have embarked on tax administration and compliance reforms, especially through the centralisation of multiple agencies and increased usage of technology.

"We believe that tax administration and compliance is likely to be most effective in the Philippines, India, Indonesia and Thailand," Moody's said in a statement.

Tax reforms are most likely to expand revenue bases in fast-growing economies with strengthening expenditure and debt management. These include the Philippines, India, Indonesia and Thailand, it said.

"For many sovereigns, measures to broaden the tax base are unlikely to boost fiscal strength unless accompanied by enhanced tax administration and measures that effectively manage expenditure growth," Moody's VP and Senior Credit Officer William Foster said.

The credit profiles of fast growing economies that are undertaking fiscal consolidation and which have relatively strong or strengthening institutions such as the Philippines, India and Indonesia are likely to garner the most support from ongoing tax reforms in the medium term, Moody's said.

On indirect revenue mobilisation, India and Sri Lanka have both recently streamlined and levied their value-added tax (VAT) or goods and services tax (GST) regimes. For India, this was the result of replacing a system of taxation at multiple points of production with taxation at a sole point.

"Overall, indirect revenue mobilisation is likely to be most effective in the Philippines, India and Sri Lanka, as these economies benefit from ongoing reforms," Moody's said.