GST desirable but no game changer, says Bank of America

The Goods and Service Tax (GST) bill has been described by Bank of America-Merrill Lynch (BofA-ML) as not a game changer. The bank said that the much-awaited GST is a desirable fiscal measure but no game changer.

The BoA-ML 'India Economy Watch' report took a look at the GST recommendations of Indian Chief Economic Advisor Arvind Subramanian. The BofA said, “While GST is a most desirable measure from a taxation point of view, we think the market over-estimates benefits in calling it a game changer.”

It said that the market over-estimates the benefits and hence calls it a game changer. “Although much is made out of gains from fiscal incentives or tax administration efficiencies, the fact is that tax buoyancy is pretty much pro-cyclical.”

It further added, “Studies show that GST will raise GDP by 0.9-1.7%, and this will benefit will likely accrue over a few years. It is for this reason we continue to stress that lending rate cuts hold the key to recovery.”

“We support the implementation of the much-awaited GST as a most desirable fiscal measure. After all, it is only logical to unify the Indian market, removing the plethora of inter-state taxation that fragments it now. Not only does this make collection as well as payment of taxes difficult, but it also delays transportation across states as trucks have to pay state-specific taxes,” BofA said.

BofA also expects the implementation of the GST by April 2017, if not April 2016.

It further added, “Friday's Arvind Subramanian report recommending a standard GST rate of 17-18%, with a range of 2-40%, is an important step in implementing it, in our view, beyond the political dynamics.”