In­dia launches new eco­nomic era with sales tax re­form

Busi­ness doubts linger Govt prom­ises stronger econ­omy

Kuwait Times - - FRONT PAGE -

In­dia yes­ter­day launched its big­gest ever fis­cal re­form with the gov­ern­ment promis­ing that a new na­tion­wide tax would make the econ­omy stronger and less cor­rupt, but busi­nesses are ner­vous about the rev­o­lu­tion. The new goods and ser­vices tax (GST) replaces more than a dozen levies im­posed na­tion­ally and by the 29 states. It aims to trans­form the na­tion of 1.3 bil­lion peo­ple and its $2 tril­lion econ­omy into a sin­gle mar­ket.

Prime Min­is­ter Naren­dra Modi held a spe­cial mid­night ses­sion of par­lia­ment to launch GST which he called "a good and sim­ple tax". "With GST, the dream of one In­dia, great In­dia, will come true," the prime min­is­ter said. "GST is a sim­ple, trans­par­ent sys­tem which pre­vents gen­er­a­tion of black money and curbs cor­rup­tion," said Modi, who jolted the coun­try last year by with­draw­ing more than 85 per­cent of In­dia's bank notes from cir­cu­la­tion in a clam­p­down on un­der-thetable deal­ings. But the prime min­is­ter, who has put huge ef­forts into the econ­omy as he tar­gets re-elec­tion in 2019, ac­knowl­edged there would be teething trou­bles. Jammu and Kash­mir state has re­fused to sign onto the one tax regime. GST has sparked protests by traders, while the main op­po­si­tion Congress Party boy­cotted the launch cer­e­mony.

Cin­e­mas close

Busi­nesses are ner­vous about GST, which sets out four dif­fer­ent rates of be­tween five and 28 per­cent in­stead of the one orig­i­nally en­vi­sioned. The GST rule book runs to more than 200 pages and last-minute changes were still be­ing made late Fri­day. It al­lows lo­cal author­i­ties to im­pose some taxes. The first fall­out was seen yes­ter­day when the south­ern state of Tamil Nadu an­nounced a 30 per­cent levy on movie tick­ets, in ad­di­tion to the 28 per­cent GST fee.

All 969 movie cin­e­mas in the state will close from Mon­day in protest, M Subra­ma­nian, pres­i­dent of a re­gional theatre own­ers as­so­ci­a­tion, told AFP. "Be­cause of this we will lose cus­tomers and it will en­cour­age il­le­gal down­loads of movies," he said. "We will con­tinue the strike till this 30 per­cent tax is re­moved." "That's the risk you have when you don't sub­sume all the taxes," said Pratik Jain, Part­ner and Leader In­di­rect Tax, PwC In­dia. "It de­feats the pur­pose of one tax."

Other sec­tors were hit as well with a higher tax rate. Light­ing store Kherati Lall Sons in cen­tral Delhi was empty yes­ter­day af­ter­noon. "Taxes have gone up for us from 12.5 per­cent to 28 per­cent," com­pany di­rec­tor Shanti Ku­mar Rakyan told AFP. "This is a huge change and it's re­ally go­ing to hit our sales." But busi­ness was boom­ing for the trans­port com­pa­nies.

Strikes abound

An ex­ec­u­tive for lo­gis­tics com­pany Rivigo in Mum­bai, who de­clined to be named, told AFP clients had asked them to en­sure that the goods reached their ware­houses be­fore mid­night when the new tax would kick in. Tex­tile traders and other sec­tors went on strike ahead of the launch and many busi­nesses say they are un­clear about what to charge. Bhar­tiya Udyog Vya­par Man­dal, a na­tional traders as­so­ci­a­tion that claims 60 mil­lion mem­bers, called a one-day strike Fri­day to protest the GST.

Many are wor­ried be­cause while re­turns have to be filed by com­puter, they do not have or do not un­der­stand the tech­nol­ogy. "Since Au­gust last year we have put for­ward our de­mands on GST but the gov­ern­ment has never re­sponded," na­tional sec­re­tary gen­eral Vi­jay Prakash Jain told AFP. "We told the gov­ern­ment, ei­ther fix this, or we will strike."

Most econ­o­mists agree the re­form-first pro­posed in 2006 -- is long over­due, but warn of an ini­tial shock to the econ­omy as busi­nesses ad­just. Credit Suisse man­ag­ing di­rec­tor in In­dia Neelka­nth Mishra warned that "the next few months will be a pe­riod of un­cer­tainty in which no com­pany would want to in­vest, that slows down the in­vest­ment cy­cle and acts as a drag on the econ­omy." — AFP


AL­LA­HABAD: This photo taken on June 30, 2017 shows In­dian traders shout­ing slo­gans as they burn an ef­figy of Fi­nance Min­is­ter Arun Jait­ley dur­ing a protest against the new Goods and Ser­vices Tax (GST).

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