Forbes India – August 4, 2017

at the stroke of midnight on the last day of june,

India formally entered the Goods and Services (GST) Tax

era. There is a lot of optimism about the new regime, but

also some amount of apprehension. A lot of this concern

revolves around the changes that the movement to GST

entails rather than a fear of the regulation itself.

Every time there is a new rule, whether it is the RERA

[Real Estate (Regulation and Development) Act] or the

bankruptcy code, there is a lot of apprehension about

the way in which the systems and processes will have to

change. But these regulations have had a positive impact

and will reap economic rewards for us in the future.

Given how mammoth it is, GST was certain to attract

some concerns. But we need to give the economy some

time to adjust to the new normal. Three to six months

down the line, we will start to see the incremental

benefits of GST trickling in.

GST is going to be a critical reform for the Indian

economy as it would simplify taxation norms by

consolidating a range of taxes under one single umbrella. At

present, different states have different tax laws. There are

nearly 17 taxes that businesses pay to various authorities,

making it a cumbersome and expensive affair. GST will

result in a simplified tax structure and a unified tax base,

with common rules and administrative procedures coming

into effect across the country. It will also result in widening

of the tax base to include a comprehensive list of goods and

services. This will bring in transparency and encourage

investments in organised sectors, helping the economy

gather growth momentum.

Boost to FDI

Since GST is expected to have a massive impact across

all sectors, the boost to Foreign Direct Investment (FDI)

will also be significant. Overall, we will see a major shift

from the unorganised sector to the organised one. With

improved efficiency and productivity, India’s position as

a leading market for FDI investment would be further

enhanced. By simplifying the tax structure, the government

is effectively incentivising foreign investors to increase

their investment quantum in India.

India is currently ranked 172/190 in ease of paying

taxes, under the Ease of Doing Business index published

by the World Bank. The government would be hoping

to significantly improve this with the implementation

of GST. The improvement in the overall economic

outlook will create a conducive environment for foreign

investment, with the expectation of faster growth driven by

formalisation of economy and lower compliance coupled

with existing factors like favourable demographics and low

cost advantage.

Formalisation of MSMEs and MSME Credit

GST is particularly important for the MSME segment—a

large vector with close to 50 million units in India. These

small units are burdened with the complex maze of taxes

and compliances which, in turn, impacts their productivity.

The ease of intra-state trade under GST would reduce

some of the supply chain bottlenecks. The GST framework

provides for availing input tax credit through the supply

chain to avoid dual taxation. So, within a supply chain, the

downstream enterprises would look to work with partners

who have paid GST and documented the trade to avail

credit. More enterprises, thus, would need to maintain

documentation of production and sales bringing them

under the ambit of taxation.

There is a significant credit gap in the SME financing

space. The lending to many of these enterprises by private

lenders and banks is restricted due to the unavailability

of proper books of accounts and other documentation

required for underwriting these loans. Better

documentation would enable lenders to assess the cash

flows of these enterprises and make them creditworthy.

The validation of the books of accounts would also be easier

with the wider tax database.

Impact on Real Estate & Housing Finance

In the realty sector, together with RERA, GST will go a

long way in ensuring transparency and heightened buyer

confidence. The existing channels include multiple taxation

By RaSHESH SHaH

Mexy x

avier

By simplifying taxation norms, the new regulation

will bring in transparency across sectors and

encourage foreign investors to invest in India

GST: A Critical

Reform That Will Drive

Economic Growth

18 | forbes india august 4, 2017

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