New Delhi: Recognising that the current indirect tax regime is adversely impacting export competitiveness of the country, a study by National Centre for Applied Economic Research (NCAER) has said that the proposed Goods and Service Tax (GST) regime will be beneficial for India’s foreign trade engagement with the rest of the world. The study was commissioned by the 13th Finance Commission, which on Tuesday had recommended a 12% rate for the proposed indirect tax.
According to the study, a distortion free indirect tax regime like GST could boost exports in the range of 3.2-6.3%. At the same time, imports are expected to gain in the range between 2.4-4.7%. NCAER said that for the GST rate to be revenue neutral, it has to be in the range of 6.2-9.4%, depending on exemptions given to various sectors.
According to the economic think tank, the proposed GST regime will also boost India’s output by adding 0.9-1.7% to India’s GDP growth rate, which would be seen in the years after the new indirect tax regime is in place. “In sum, implementation of a comprehensive GST in India is expected to lead to efficient allocation of factors of production thus leading to gains in GDP and exports. This would translate into enhanced economic welfare and returns to the factors of production, viz. land, labour and capital,” the study concluded.
Productivity of sectors that are likely to improve in the GST regime include textiles and ready-made garments; minerals(other than coal), petroleum, gas and iron ore, organic heavy chemicals, industrial machinery for food and textiles as well as beverages. But output of sectors like natural gas and crude petroleum; iron ore, coal tar products, and nonferrous ores will decline. Moreover, they study said that imports of textiles and ready-made garments; minerals (other than coal), crude petroleum, gas and iron ore; and beverages will decrease.
NCAER also recognised that the current indirect tax regime, especially in the states, have been eating in to the competitiveness of Indian exporters. “While much of the taxes paid on intermediate purchases by the business firms get rebates there still exist components which do not get this benefit. While the Central indirect taxes including customs and excise duties get nearly fully reimbursed, the state-level taxes do not get full offsets,” the study said.
Commerce Ministry and the Federation of Indian Export Organisations have been maintaining that un-rebated state level indirect taxes like central sales tax (CST)electricity duty, sales tax on petroleum products, mandi tax, entry taxes, octroi and municipal taxes account for 3-12% of the freight-on-board value of export consignments. “These figures include 1% to 9% as electricity duty, CST and sales tax on petroleum products and the remainder on account of mandi tax, entry tax, octroi, municipal taxes and cesses,” the study said.
According to NCAER, since all state and central level taxes will be subsumed within the GST, exporters would be able to fully offset indirect taxes on inputs.
Source : FinancialExpress