India braces for sweeping tax reform

NEW DELHI: Prime Minister Narendra Modi’s government is set to dramatically reshape Asia’s third-largest economy with the biggest tax reform since independence in 1947.

After finding common ground among India’s 29 states, the finance ministry on Friday released detailed rates for the incoming Goods and Services Tax (GST), slotting more than 1,200 items — from sugar to steel pipes and motorcycles — into five tax brackets between zero and 28 per cent.

With that done, India is almost ready to implement a tax code that unifies more than a dozen separate levies, effectively creating a single market with a population greater than the United States, Europe, Brazil, Mexico and Japan combined.

“It is a tax revolution, in many ways, because the indirect tax structure in India was hopelessly chaotic,” said Raghbendra Jha, head of the economics department at Australian National University. “It’s mind boggling, the sheer magnitude of the reform taking place.”

The sweeping tax reform will gradually reshape India’s business landscape, make the world’s fastest-growing major economy an easier place to do business and is likely to raise government revenues by widening the tax net in the country’s largely informal US$2 trillion (RM8.66 trillion) economy.

That means India could spend more on desperately needed infrastructure and training programmes for a workforce that is growing by one million people each month, laying the groundwork for longer-term growth.

With tax experts praising the rates as moderate and generally lower-than-expected, it seems possible Modi may be able to roll out this reform without a politically damaging rise in inflation.

However, some economists and analysts see a July 1 deadline as unrealistic. Business groups, fearing a chaotic implementation, have lobbied the government for a September 1 roll out.

“To expect the rates are out on the May 18 or 19, and everyone will