India continues to be the fastest growing major economy in the world and its growth will accelerate further due to factors like the implementation of their simplified taxation system, Finance Minister Arun Jaitley said.
The government’s Goods and Services tax (GST) tax reform has been identified as one of most important tax reforms for India post-independence, says a report by the United States Federal Reserve. In the summer of 2016, the Indian Congress approved the tax legislation to simplify the current multilayered tax structure which taxes the Indian population at the federal, state, and local levels. The report indicates the change could boost India’s GDP growth by up to 4.2%, double the previous estimate, as lower taxes on manufactured goods will boost output and make products cheaper. With these projected growth numbers, we can expect an increase in international competitiveness of Indian companies, thus helping the country expand external trade by an estimated 32%.
THE NEW TAX REFORM
The Federal Reserve of the United States believes the new and simplified tax system will unify at least 10 indirect taxes into one to be collected at state and central levels. The one tax is split into a four-tier schedule of 5, 12, 18 and 28 percent. The report explains that while necessity goods will be taxed at 5 percent and luxury and consumer durable goods at 28 percent, most goods and all services will be taxed at the standard rates of either 12 or 18 percent, but the allocation to each tax rate is still uncertain. The main purpose of the new tax is to eliminate the compounding effect of the current tax system as well as the cross-state tax by fixing the final tax rate. Under the existing structure, at each point of sale, additional taxes are applied to the after-tax value of each goods and services. The new tax reform will bring down prices and costs, which should increase India’s productivity levels.
The Indian government is fully on course to implement the Goods and Services Tax by July 1, 2017. The improved tax system will deliver significant externalities by way of improved tax efficiency and ease of doing business and will convert India into one common market. The United States Federal Reserve’s report expects the reform to raise overall Indian prosperity, and is projected to be an inclusive policy in that it would be fiscally positive for all Indian states.
WHAT THIS MEANS FOR OUR INVESTORS
We expect the implementation of this tax legislation will positively impact the overall growth trajectory and productivity levels of Indian companies. When you combine this legislative change with India’s favorable growth and the Indian government’s focus on pro growth reform policies, it becomes very apparent that India will continue to be a key destination for foreign investors. As the Canadian pioneers in Indian investing, Excel Funds is enthusiastic about India’s growth outlook and the positive investment environment it will generate for Indian corporations.
 The Times of India, India’s growth to accelerate further due to GST, April 23, 2017
 Board of Governors of the Federal Reserve, The Effect of GST on Indian Growth, March 24, 2017
 Times of India, GST to boost GDP by 4.2%, April 22, 2017
 Deccan Herald, GST to boost growth, make products cheaper, April 23, 2017
 PTI, GST will boost India’s growth, April 23, 2017
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