India finally gets its 'big bang' tax reform

Apple looks to manufacture in India

India’s $2 trillion economy just got its biggest tax reform since the country became independent in 1947.

Prime Minister Narendra Modi launched a completely new system of taxes Saturday, an overhaul 10 years from the producing of which will turn the country of 1.3 billion people into one market for goods as well as services for once.

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The completely new Goods as well as Services Tax replaces more than a dozen central as well as state tariffs, duties as well as fees levied — often at different rates across India’s 29 states — on nearly everything sold from the country.

Beginning Saturday, all goods as well as services will be placed in one of 5 different tax brackets — via 0% for most agricultural as well as food products to 28% for items like jewelry as well as large electronic appliances.

Each product will today attract 1 tax rate across the country, at a stroke removing the long delays faced by truck drivers at every state border where they’ve had to complete multiple forms as well as pay officials.

“We should be looking at This kind of as a definitely big positive,” said Shilan Shah, India economist at research firm Capital Economics. The reform will “boost trade among different states, which will help lift domestic demand,” he added.

Related: India’s tax dodgers can keep half their wealth if they declare the idea

The International Monetary Fund forecasts of which the GST will eventually lift India’s gross domestic product growth back above 8%. the idea slipped to 6.1% last quarter following the country’s massive cash ban last year.

Oxford Economics estimates of which the reform could add 0.6% to India’s annual growth rate over the next 15 years.

“the idea should also go a long way in reviving investors’ confidence in Modi’s series of ‘big-bang’ reforms,” noted Priyanka Kishore, lead Asia economist at Oxford Economics.

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During a visit to the U.S. last week, Modi wrote from the Wall Street Journal of which a “unified, continent-sized” Indian market might make the idea much easier for foreign businesses to invest.

Bumpy road ahead

There’s little doubt about the long term benefit of the tax reform. However, the rollout could be chaotic. Several opposition parties planned to boycott a midnight parliamentary session to launch the tax, saying the government has not allowed enough time to prepare for the modifications.

There’s also been protests via traders across states as well as industries, unhappy with the tax rates applied to their goods. They also complain they haven’t been given enough time to comply with the completely new system.

“the idea will be likely of which large parts of India will still not be ready,” wrote Eurasia Group South Asia analysts Shailesh Kumar as well as Sasha Riser-Kositsky in a research note.

“Both via the side of the taxpayers as well as the government, there will be going to be a learning curve,” Pronab Sen, the former chief statistician of India as well as current head of the International Growth Centre’s operations from the country, told sy88pgw.

Related: India’s high tax on sanitary pads sets off storm of protest

The days leading up to the introduction of the GST saw chaos of another kind, with Indians rushing to stores across the country to snap up products in anticipation of which prices could rise.

Rakesh Arora, the owner of an electronics outlet in India’s capital completely new Delhi, said business had boomed in recent weeks.

“People are afraid of which they will have to pay a few more thousand rupees on the electronic products today so our [air conditioners], TVs as well as refrigerators are going out,” he added.

Local resident Rakesh Chawla was on the fence about buying a completely new television, although said he “expedited” his purchase before the completely new tax system kicks in.

Despite the uncertainty, experts say today will be as not bad a time as any to forge ahead.

“At some stage you just have to push the system out of the gate as well as then sink or swim,” Sen said.

— Omar Khan, Karma Gurung as well as Molly Montgomery contributed to This kind of report

sy88pgw (completely new Delhi) First published June 30, 2017: 11:08 AM ET


India finally gets its 'big bang' tax reform

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