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GST Implementation to Attract Foreign Direct Investment

Mar 07, 2017

The nation is expecting the Goods and Services Tax (GST) to be implemented by July 2017. The implementation of GST is expected to bring in the much-needed boost to the nation’s economy. Market experts believe that the implementation of the new tax structure will attract more Foreign Direct Investment (FDI) and increase tax compliance. This is in turn, is expected to improve business transparency which will create a trust-worthy bond between corporates and the government.

Takehiko Nakao, the president of the Asian Development Bank (ADB) applauded the Indian government’s decision to implement GST. He was of the view that the move will help integrate the Indian economy as a ‘truly one single economy’ and will motivate foreign firms to invest more in India’s thriving and blooming economy. The ADB chief also suggested the Indian government should push more for tax reforms and insisted on the need for better infrastructural development in the nation. In an interview with PTI, Nakao said that in the years to come India’s growth would continue to exceed 7 percentage, whereas other global and Asian economies would have to adjust their business reforms.

“For India to grow faster, FDI is important… For that purpose, Indian economy should be integrated as truly one single economy and … rationalization of tax, the GST, as the government is seeking, is very important reform. I hope it can be successful,” Nakao added.

According to a survey conducted by Feedback Business Consulting Services across 67 Indian companies, majority believed that the GST implementation would be constructive for the Indian economy. Around 72 percentage respondents reverted that they believed investments would increase across different sectors and a significant portion of that would be in the form of FDI, especially in the automotive and heavy engineering sector.

Paving Way for Foreign Investments

GST implementation is expected to welcome a tide of benefits for both the common man and business owners. Some of these benefits include reduced tax hassles and expenses, no overlapping of taxes, reduction in overall tax burden, reduced logistics cost, control on leakage, higher revenue efficiency, reduction in costs for tax & regulatory compliance and export effectiveness. However, organizations seem to be more concerned about the GST implementation date and whether they will be able to accommodate their business processes within the stipulated timeline.

With GST, tax compliances are expected to safeguard the loss of tax credits. This will result in more profits in trade measures. Since, GST will be applied based on the destination of goods/service delivery, the system will include fewer documentation or paper work at the intermediary levels. Malpractices such as fraud, bribery, corruption and red-tapism will get severely hindered. This will strengthen India’s position as a reliable trade partner in international forums. Worldwide imports and exports will increase and India’s manufacturing sector will capture the global limelight.

The implementation of the GST bill will strengthen the nation’s taxation structure and bring it at par with some of the best economies of the globe. The status of the current government as that of a pro-reforms administration will also be strengthened. This one single move of implementing GST will significantly improve India’s position in the ease to do business. As the ease of doing business in India will advance, it’s attractiveness as a preferred investment destination will get a boost. This will naturally increase the FDI flowing into the Indian economy.

Bright Global Trade Destination

With respect to international trade and FDI, GST implementation can positively be termed as a breakthrough tax reform. By streamlining the tax structure, India has opened its gate to foreign investors. Increased tax compliance will ensure reduced litigations and increased investor confidence.

Also, with provisions such as zero-rated exports, GST will boost exports that will move tax free. Trade cost will also significantly drop as intermediate costs, such as those required for payment of multiple levels of taxes and documentation, will get eliminated. Stronger tax compliances and lesser documentation will reduce delays in clearance or granting of license for projects. All in all, GST will usher a transitional shift from a complicated, multi-layered indirect taxation system to a single unified indirect taxation system. In a slow global economy, GST will offer India the much needed trade boost.

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