INDIA LAUNCHES TAX REVOLUTION
NEW DELHI— India recently 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.
Businesses are nervous about GST, which sets out four different rates of between five and 28 percent instead of the one originally envisioned.
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.”
Rating agency ICRA said that while GST would increase in compliance in some sectors, smaller traders and businesses that are not compliant will lose business to large firms with big networks.