Guest Post: By India Avenue Investment Management
From our latest Mumbai office note, we've explored GST's transformational effects on India, where we highlight why many listed Indian businesses will create significant wealth for investors during this period of momentum!
India’s Prime Minister, Narendra Modi introduced India’s biggest tax reform, GST on July 1st, 2017. GST subsumed the existing multiple tax rates on goods and services across the country into a single tax system. In one year, GST has seen a shift towards formalisation of the Indian economy with 11.2 million businesses registered (up 40%), widening of the tax base, monthly revenue of Rs. 896 billion (AU$ 17.9 billion) till March’18, improvement in compliance and a free flow of tax credits resulting in reduced prices for consumers.
Until now, India has been a low tax revenue economy, as a large portion of income is generated by small and medium sized companies who are often provided with tax exemptions. Furthermore, a large part of the economy belongs to the informal sector, and as such pay little to no tax. Unsurprisingly, India’s tax to GDP ratio in fiscal year 2018 stood at 11.6%.
The launch of GST has seen a rise in tax collections to Rs. 956 bn (AU$ 19.1 bn) in June 2018 and 68.4 million people filing income tax returns.
