Bengaluru: The new tax regime may lead to a 1 to 2 per cent dip in the GDP number in the next few quarters, owing to protests against GST and drop in overall business activities but will lead to a rise in tax compliance.
According to the lead economist at Dun & Bradstreet India, Arun Singh, once the Small and Medium Enterprises (SMEs) begin move from the unorganised sector to an organised one, it will have a ripple effect on the GDP growth rate.
According to Mr Singh, a slight dip in the GDP number is expected in the next few quarters. “In one quarter down the line, GST will create a short term disruption. This disturbance is caused due to protests against GST and drop in overall business activities, which will eventually add to lower GDP number,” he added.
However, he feels that GST is a good move, which will bring unorganised sector to the framework of the organised sector, which will benefit more than 90 per cent of SMEs.
Additionally, the tax revenue is expected to go up in the mid-term to long term period. “The new tax regime is not about giving a boost to the economy; it’s about bringing tax discipline and making everybody tax-compliant. If the companies become a part of the GST chain, it becomes difficult to be non-compliant with the new norms, which will result in increased tax revenues,” said Mr Singh.
Despite some initial headwinds in the short-term period, the impact of GST will be positive in the mid-term to long-term period. Once the situation stables out and businesses comply with the new norms, the GDP number will go up in the mid-term period. When each and every entity of the entire cycle becomes a part of the GST network; everybody will get the benefits of the new tax reform, from a long-term perspective.