Benefits of India's GST reform

In a historic development, the Rajya Sabha passed the constitutional amendment paving the way for the goods & services tax (GST). The reform is expected to bump up GDP by about a percentage point or even more.

Here's a look at GST's benefits.

1. Life gets simpler

GST will replace 17 indirect tax levies and compliance costs will fall.

2. Revenue will get a boost

Evasion set to drop.Input tax credit will encourage suppliers to pay taxes. States and Centre will have dual oversight. The number of tax exempt goods will decline.

3. A common market

It's currently fragmented along state lines, pushing costs up 20-30%.

4. Logistics, Inventory costs will fall

Checks at state borders slow movement of trucks. In India, they travel 280 km a day compared with 800 km in the US.

5. Investment boost

For many capital goods, input tax credit is not available. Full input tax credit under GST will mean a 12-14% drop in the cost of capital goods. Expected: A 6% rise in capital goods investment, 2% overall.

6. Make in India

Manufacturing will get more competitive as GST addresses cascading of tax, inter-state tax, high logistics costs and fragmented market. Increased protection from imports as GST provides for appropriate countervailing duty.

7. Less developed states get a lift

The current 2% inter-state levy means production is kept within a state. Under the GST national market, this can be dispersed, creating opportunities for others.

8. Manufactured goods could become cheaper

Lower logistics and tax costs.

9. GDP Lift

HSBC estimates an 80 basis point rise in GDP growth over 3-5 years. NCAER pegs this at 0.9-1.7% thanks to the elimination of tax cascading.

10. Freeing up online

State restrictions and levies have complicated ecommerce. Some sellers do not even ship to particular states. All this will end with GST.