GST could lead to lower tax rates: RBI Governor

MUMBAI: The Reserve Bank of India (RBI) governor Urjit Patel has said that the Goods and Services Tax, which comes into effect from July 1, could be the precursor to lower tax rates. Besides creating one national market, GST would reduce inefficiencies within a state by eliminating city taxes, Patel said.

"The broader point is that GSTN itself is a digitisation revolution, plus the reforms on the tax information side in terms of processes have the potential of augmenting tax base considerably. I think the widening of the tax base is an important outcome of GST," said Patel.

Speaking at the Indian Merchant Chamber's banking conference in Mumbai on Thursday, Patel said that the emergence of technology in financial services had resulted in both opportunities and risks to financial stability which needs to be addressed by policymakers, regulators and supervisors. "The reason is obvious. Many innovations have not been tested through the full financial cycle. We really come to know what works and what does not when we go through a cycle. Decisions taken at an early stage could set precedents and therefore some caution is not unwarranted given that the world is not yet fully recovered from the 2008-09 crisis," said Patel.

The governor said that even in India from a very low base the fintech industry has almost tripled in size from 2013 with the value of transactions rising to $30 billion.

"Without mentioning fintech, the RBI has taken steps to facilitate innovation in banking," said Patel.

He gave the example of payments banks, the Bharat Bill Payment System, the proposed account aggregators and the norms for peer-to-peer lending.

"We have facilitated launch of payments systems. UPI is the most well known. The Trade Receivables Discounting System (TReDS) has been set up to help SMEs" said Patel.

According to Patel, startups in the IT space could help offset job losses in larger firms. While there could be pressure on employment in some of the IT sectors, it is not necessarily in terms of literally a job destruction, but may be the growth rate is affected by what is happening. The number of startups in that same space is almost compensating for most of this," he said.