GST will lead to fall in taxes; we have gained from open-trading system: Urjit Patel

The Goods and Services Tax (GST) will eventually reduce taxes and inefficiencies within states and broaden the tax base making it an important part of digital revolution, said the Reserve Bank of India Governor Urjit Patel.

Speaking at a panel organised at the IMC’s 9th Banking and Financial Services Conference in Mumbai, Patel said, “Apart from creating a national market, it (GST) will also end up reducing many of the inefficiencies within the states that we face when we move goods within a state and across states. The city taxes, for example, will disappear…I think this is a precursor to the taxes in India later on coming down…that is the right way to do it.”

According to him, the prudent point is that the GSTN (GST network) itself “is a part of the digitisation revolution and that plus the reforms on the information tax side, in terms of the processes and operations, have the potential of broadening the tax base considerably”.

On the global front, Patel said that one of the biggest risks to the global economy is tariff walls going up, non-tariff barriers being directed and moral suasion being applied in a variety of ways to not roll back in terms of higher growth.

“Unequivocally, India’s position should be for an open trading system despite sentiments with some of the other countries changing and that is the right position to take. India has believed in a multilateral trading system and must continue to force ourselves into that,” Patel said, adding that India must continue doing so despite changes in other countries, alluding to the protectionist policies by the US and UK.

He said that as a USD 2.3 trillion-dollar economy at market exchange rates, India’s voice does count and for the most part “we have benefitted from an open trading system. We have also seen at bilateral trade pacts, the default should be an open trading system for goods and services.”

The RBI chief further said that paying mere lip service by advanced economies on open borders is not sustainable anymore and they need to catch up on this issue in terms of opportunities and inequality in income if we want to continue to have open trade and services going forward.