NEW DELHI: Moody's has said that Rajya Sabha’s approval to the constitutional amendment bill paves the way for the implementation of the goods and services tax (GST), and is a positive development for India’s credit rating.



"The GST will have a positive impact on growth and tax revenues over the medium term, supporting the sovereign's credit profile," the ratings agency said while counting other positives. "It will remove a key hurdle to the smooth movement of goods and services, and by reducing the tax administration costs of the government and corporate sector, it will improve compliance and raise tax receipts," Moody’s said in a report titled India Credit, Upper House Passage Paves Way for GST Bill Implementation, a Credit Positive.



The rating agency said there will not be a short term impact as effective implementation will take some time, and the recommended GST rates are intended to be revenue neutral. Moody’s has a positive outlook on India’s Baa3 rating.



"While other legislative and technical hurdles remain such as ratification by at least 50% of the state assemblies, the constitutional amendment bill's passage through the upper house removes a key impediment to implementation, and we could see the tax's enactment by the next fiscal year (April 2017 to March 2018)," Moody’s said.



Moody’s expects effective total tax rates on some goods to decline in a GST, while other goods and some services will be subject to a higher effective tax rate. It expects GST to have a ‘negligible’ impact on overall inflation. GST will provide a simpler administrative framework to corporates, reduce their tax governing costs, provide swifter mobility across states, and improve the overall cost competitiveness, the ratings agency said.



"Over time, we believe the impact of the GST will be positive for most corporate sectors across the value chain, spanning procurement of raw materials, manufacturing of goods, sales and distribution of finished goods and services, logistics, and warehousing of goods from manufacturing locations to end-customers," it said in a statement.