India Inc braces for GST rollout

Meerut, June 28: Businessman Pankaj Jain is so worried about the impending launch of a new sales tax in India that he is thinking of shutting down his tiny textile factory for a month to give himself time to adjust.

Mr Jain is one of millions of small business owners who face wrenching change from India's biggest tax reform since independence that will unify the country's $2 trillion economy and 1.3 billion people into a common market.

But he is simply not ready for a regime that from July 1 will for the first time tax the bed linen his 10 workers make, and require him to file his taxes every month online.

On the desk in his tiny office in Meerut, two hours drive northeast of New Delhi, lay two calculators. Turning to open a metal cabinet, he pulled out a hand-written ledger to show how he keeps his books. “We will have to hire an accountant — and get a computer,” the thickset 52-year-old told Reuters, as a dozen ancient power looms clattered away in the ramshackle workshop next door.

Prime Minister Narendra Modi's government says that by replacing several federal and state taxes, the new GST will make life simpler for business.

To drive home the point, Amitabh Bachchan has appeared in a promotional video in which he weaves a cat's cradle between the fingers of his hands - symbolizing India’s thicket of old taxes.

With a flourish, the tangle is gone and Mr Bachchan proclaims: “One nation, one tax, one market!”

By tearing down barriers between India’s 29 states, the GST should deliver efficiency gains to larger businesses. HSBC estimates the reform could add 0.4 per cent to economic growth. Yet at the local chapter of the Indian Industries Association, which groups 6,500 smaller enterprises nationwide, the talk is about how to cope in the aftermath of the GST rollout.

“In the initial months, there may be utter confusion,” said chairman Ashok Malhotra, who runs one firm that manufactures voltage stabilisers and a second that makes timing equipment for boxing contests.

A big concern is the Indian GST’s sheer complexity — with rates of 5, 12, 18 and 28 per cent, and myriad exceptions, it contrasts with simpler, flatter and broader sales taxes in other countries.

The official schedule of GST rates runs to 213 pages and has undergone repeated last-minute changes.

“Rubber goods are taxed at 12 per cent; sporting goods at 18 per cent. I make rubber sporting goods – so what tax am I supposed to pay?” asks Anurag Agarwal, the local IIA secretary.

The government official responsible for coordinating the rollout rebuts complaints from bosses that the tax is too complex.