India’s new tax regime a game-changer

Goods and services tax that takes effect on July 1 will result in short-term economic disruption

India’s tryst with a historic new tax regime is just around the corner — and many in the country have expressed a sense of scepticism and fears of disruption once the goods and services tax (GST) replaces more than a dozen federal and provincial levies from July 1.

It has been widely publicised that the proposed tax reform — India’s biggest and boldest since its independence in 1947 — would potentially impact both the manufacturing and services sector throughout their entire value chain — from manufacturing to distribution and pricing. The lack of readiness in certain key sectors and their integration with the GST network has also been cited by many as a reason to push back the rollout of the GST regime.

But what has not received a lot of public scrutiny is how a welldesigned GST in India will simplify the current indirect tax regime and instead put the Indian economy on a high-growth trajectory. In a country with a severely complicated tax structure such as India, the public has to contend with a plethora of levies ranging from excise duty, service tax, Value Added Tax (VAT), the central sales tax and luxury duties, apart from a myriad other charges collected by local councils. Add to this the inherent loss of inefficiency and scope for corruption that such complexities bring, and it’s not too difficult to fathom why a majority of Indian companies, entrepreneurs and foreign investors are cheering the arrival of a potential game changer with the GST. A change of such magnitude will surely result in some economic disruption in the short term, and the federal and state governments must work together to ensure such hurdles for the public are minimised. However, the real challenge for GST lies in how India’s administrators and its people can act together to create a bold new era of transformation that will ultimately benefit its 1.3 billion consumers.