GST tax rollout: India got its big bang reform – Jun

India eventually gets its ‘big bang’ tax reform

Prime Minister Narendra Modi launched a fresh system of taxes Saturday, an overhaul ten years in the making that will turn the country of 1.Trio billion people into one market for goods and services for the very first time.

The fresh Goods and Services Tax substitutes more than a dozen central and state tariffs, duties and fees levied — often at different rates across India’s twenty nine states — on almost everything sold in the country.

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

Each product will now attract a single 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 finish numerous forms and pay officials.

“We should be looking at this as a indeed big positive,” said Shilan Shah, India economist at research hard Capital Economics. The reform will “boost trade among different states, which will help lift domestic request,” he added.

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

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

“It 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.

During a visit to the U.S. last week, Modi wrote in the Wall Street Journal that a “unified, continent-sized” Indian market would make it much lighter for foreign businesses to invest.

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, telling the government has not permitted enough time to prepare for the switches.

There’s also been protests from traders across states and industries, unhappy with the tax rates applied to their goods. They also complain they haven’t been given enough time to conform with the fresh system.

“It is likely that large parts of India will still not be ready,” wrote Eurasia Group South Asia analysts Shailesh Kumar and Sasha Riser-Kositsky in a research note.

“Both from the side of the taxpayers and the government, there is going to be a learning curve,” Pronab Sen, the former chief statistician of India and current head of the International Growth Centre’s operations in the country, told CNNMoney.

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

Rakesh Arora, the holder of an electronics outlet in India’s capital Fresh Delhi, said business had boomed in latest weeks.

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

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

Despite the uncertainty, experts say now is as good a time as any to forge ahead.

“At some stage you just have to thrust the system out of the gate and then drown or swim,” Sen said.

— Omar Khan, Karma Gurung and Molly Montgomery contributed to this report

GST tax rollout: India got its big bang reform – Jun

India eventually gets its ‘big bang’ tax reform

Prime Minister Narendra Modi launched a fresh system of taxes Saturday, an overhaul ten years in the making that will turn the country of 1.Three billion people into one market for goods and services for the very first time.

The fresh Goods and Services Tax substitutes more than a dozen central and state tariffs, duties and fees levied — often at different rates across India’s twenty nine states — on almost everything sold in the country.

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

Each product will now attract a single 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 accomplish numerous forms and pay officials.

“We should be looking at this as a indeed big positive,” said Shilan Shah, India economist at research rock hard Capital Economics. The reform will “boost trade among different states, which will help lift domestic request,” he added.

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

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

“It 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.

During a visit to the U.S. last week, Modi wrote in the Wall Street Journal that a “unified, continent-sized” Indian market would make it much lighter for foreign businesses to invest.

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, telling the government has not permitted enough time to prepare for the switches.

There’s also been protests from traders across states and industries, unhappy with the tax rates applied to their goods. They also complain they haven’t been given enough time to serve with the fresh system.

“It is likely that large parts of India will still not be ready,” wrote Eurasia Group South Asia analysts Shailesh Kumar and Sasha Riser-Kositsky in a research note.

“Both from the side of the taxpayers and the government, there is going to be a learning curve,” Pronab Sen, the former chief statistician of India and current head of the International Growth Centre’s operations in the country, told CNNMoney.

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

Rakesh Arora, the holder of an electronics outlet in India’s capital Fresh Delhi, said business had boomed in latest weeks.

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

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

Despite the uncertainty, experts say now is as good a time as any to forge ahead.

“At some stage you just have to thrust the system out of the gate and then bury or swim,” Sen said.

— Omar Khan, Karma Gurung and Molly Montgomery contributed to this report

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