In­dia braces for sweep­ing tax re­form

New Straits Times - - Business | World -

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

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