NEW DELHI- India early morning on July 1 introduced its biggest tax reform in the 70 years since independence from British colonial rule. The Goods and Services Tax (GST) replaces more than a dozen federal and state levies and unifying a $2 trillion economy and 1.3 billion people into one of the world’s biggest common markets. The measure is expected to make it easier to do business by simplifying the tax structure and ensuring...
greater compliance, boosting Prime Minister Narendra Modi’s economic credentials before a planned re-election bid in 2019.
A minute after the stroke of midnight, President Pranab Mukherjee and Prime Minister Narendra Modi pressed the button to launch the new indirect tax regime on a digital screen with “GST” emblazoned on it in a golden hue.Conceived on the principle of ‘one nation, one tax, one market’, the tax that subsumes 17 central and state levies was launched in the presence of Vice President Hamid Ansari, former Prime Minister H.D. Deve Gowda, Lok Sabha Speaker Sumitra Mahajan, Finance Minister Arun Jaitley, MPs, chief ministers, state finance ministers, officials of the Centre and states.
Notwithstanding the fact that the GST Law was a consensus product evolved over 14 years, the function in colorfully-decked Parliament House was boycotted by major opposition parties like Congress, Trinamool Congress, RJD, DMK and Left parties, saying the government was making a spectacle of a legislation for self-promotion, a charge Jaitley rejected. In keeping with his party’s decision, former Primer Minister Manmohan Singh kept away from the event. However, MPs and leaders of Congress allies NCP and Samajwadi Party attended the function. Addressing the gathering, President Pranab Mukherjee said the introduction of GST is a moment of precedent for the country and a matter of personal satisfaction for him because of his role as Finance Minister earlier. “I had always believed that GST was a matter of time and was happy when it was enacted and I gave assent to the Constitution amendment last year,” he said.
In his speech, Modi said the roll out of GST is the best example of cooperative federalism and success of Indian democracy. “The credit for the new law does not go to one party or one government but was a shared legacy of all,” he said.
The GST process cannot be confined to just economic system but was a collective effort of all, he said, adding it was a product of long discussions among the best brains of the country. “It is an example of Team India’s strength and ability,” he said.
He described the GST as ‘Good and Simple Tax’ -- good because there will be no tax on tax and simple because there will be only one form of tax. It will also help eliminate black money and corruption because of the transparency it seeks to bring in, he said.
Modi said whatever was lacking in growth and development of the country, GST will provide the opportunity to realise them.
Welcoming the gathering, Jaitley described GST as the biggest and most ambitious tax reform which is an achievement of the country through consensus. It highlights the fact that India can rise above narrow politics and work for country’s benefit. In making the GST, neither the Centre nor the states gave up their sovereignty.
COMPLEX STRUCTURE
It has taken 14 years for the new sales tax to come into being. But horse trading to get recalcitrant Indian states on board has left Asia’s third-largest economy with a complex tax structure.
In contrast to simpler sales taxes in other countries, India’s GST has four rates and numerous exemptions. The official schedule of rates runs to 213 pages and has undergone repeated changes, some taking place as late as on Friday evening.
Many businesses are nervous about how the changes will unfold, with smaller ones saying they will get hit by higher tax rates.
Adding to the complexity, businesses with pan-India operations face filing over 1,000 digital returns a year.
While higher tax rates for services and non-food items are expected to fuel price pressures, compliance is feared to be a major challenge in a country where many entrepreneurs are not computer literate and rely on handwritten ledgers.
“We have jumped into a river but don’t know its depth,” said A. Subba Rao, an executive director at power firm CLP India.
‘ONE TAX, ONE MARKET, ONE NATION’
Poor implementation would deal a blow to an economy that is still recovering from Modi’s decision late last year to outlaw 86 percent of the currency in circulation.
In a bid to mitigate the impact on the farm sector, the GST rates for tractors and fertiliser were slashed on Friday to 18 percent and 5 percent, respectively. HSBC estimates the reform, despite its flaws, could add 0.4 percentage points to economic growth.
An end of tax arbitrage under the GST is estimated to save companies $14 billion in reduced logistics costs and efficiency gains.
As the GST is a value added tax, firms will have an incentive to comply in order to avail credit for taxes already paid. This should widen the tax net, shoring up public finances. The GST is expected to check tax evasion and broaden tax base. In the new regime, all filings will be done only through electronic mode to ensure non-intrusive administration. This will minimise taxpayers’ physical interaction with the tax officials. The GST regime seeks to reduce rates of over 50 per cent of items of daily use and charge others at much lower rate of 5 per cent, 12 per cent and 18 per cent. A higher tax rate is imposed on luxury and sin goods at 28 per cent in the new regime. Certain services like telephone, banking and insurance are expected to feel the pinch of higher taxes.(Agencies)
A minute after the stroke of midnight, President Pranab Mukherjee and Prime Minister Narendra Modi pressed the button to launch the new indirect tax regime on a digital screen with “GST” emblazoned on it in a golden hue.Conceived on the principle of ‘one nation, one tax, one market’, the tax that subsumes 17 central and state levies was launched in the presence of Vice President Hamid Ansari, former Prime Minister H.D. Deve Gowda, Lok Sabha Speaker Sumitra Mahajan, Finance Minister Arun Jaitley, MPs, chief ministers, state finance ministers, officials of the Centre and states.
Notwithstanding the fact that the GST Law was a consensus product evolved over 14 years, the function in colorfully-decked Parliament House was boycotted by major opposition parties like Congress, Trinamool Congress, RJD, DMK and Left parties, saying the government was making a spectacle of a legislation for self-promotion, a charge Jaitley rejected. In keeping with his party’s decision, former Primer Minister Manmohan Singh kept away from the event. However, MPs and leaders of Congress allies NCP and Samajwadi Party attended the function. Addressing the gathering, President Pranab Mukherjee said the introduction of GST is a moment of precedent for the country and a matter of personal satisfaction for him because of his role as Finance Minister earlier. “I had always believed that GST was a matter of time and was happy when it was enacted and I gave assent to the Constitution amendment last year,” he said.
In his speech, Modi said the roll out of GST is the best example of cooperative federalism and success of Indian democracy. “The credit for the new law does not go to one party or one government but was a shared legacy of all,” he said.
The GST process cannot be confined to just economic system but was a collective effort of all, he said, adding it was a product of long discussions among the best brains of the country. “It is an example of Team India’s strength and ability,” he said.
He described the GST as ‘Good and Simple Tax’ -- good because there will be no tax on tax and simple because there will be only one form of tax. It will also help eliminate black money and corruption because of the transparency it seeks to bring in, he said.
Modi said whatever was lacking in growth and development of the country, GST will provide the opportunity to realise them.
Welcoming the gathering, Jaitley described GST as the biggest and most ambitious tax reform which is an achievement of the country through consensus. It highlights the fact that India can rise above narrow politics and work for country’s benefit. In making the GST, neither the Centre nor the states gave up their sovereignty.
COMPLEX STRUCTURE
It has taken 14 years for the new sales tax to come into being. But horse trading to get recalcitrant Indian states on board has left Asia’s third-largest economy with a complex tax structure.
In contrast to simpler sales taxes in other countries, India’s GST has four rates and numerous exemptions. The official schedule of rates runs to 213 pages and has undergone repeated changes, some taking place as late as on Friday evening.
Many businesses are nervous about how the changes will unfold, with smaller ones saying they will get hit by higher tax rates.
Adding to the complexity, businesses with pan-India operations face filing over 1,000 digital returns a year.
While higher tax rates for services and non-food items are expected to fuel price pressures, compliance is feared to be a major challenge in a country where many entrepreneurs are not computer literate and rely on handwritten ledgers.
“We have jumped into a river but don’t know its depth,” said A. Subba Rao, an executive director at power firm CLP India.
‘ONE TAX, ONE MARKET, ONE NATION’
Poor implementation would deal a blow to an economy that is still recovering from Modi’s decision late last year to outlaw 86 percent of the currency in circulation.
In a bid to mitigate the impact on the farm sector, the GST rates for tractors and fertiliser were slashed on Friday to 18 percent and 5 percent, respectively. HSBC estimates the reform, despite its flaws, could add 0.4 percentage points to economic growth.
An end of tax arbitrage under the GST is estimated to save companies $14 billion in reduced logistics costs and efficiency gains.
As the GST is a value added tax, firms will have an incentive to comply in order to avail credit for taxes already paid. This should widen the tax net, shoring up public finances. The GST is expected to check tax evasion and broaden tax base. In the new regime, all filings will be done only through electronic mode to ensure non-intrusive administration. This will minimise taxpayers’ physical interaction with the tax officials. The GST regime seeks to reduce rates of over 50 per cent of items of daily use and charge others at much lower rate of 5 per cent, 12 per cent and 18 per cent. A higher tax rate is imposed on luxury and sin goods at 28 per cent in the new regime. Certain services like telephone, banking and insurance are expected to feel the pinch of higher taxes.(Agencies)
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