India rolls out biggest tax reforms since Independence
NEW DELHI, June 30, 2017
India, under the leadership of Prime Minister Narendra Modi, on Saturday replaced its numerous federal and state taxes with the Goods and Services Tax (GST), designed to unify the country into a single market.
With this move, India's $2 trillion economy is getting its biggest tax reform since the country became independent in 1947.
The historic overhaul of the existing tax legislation was carried out at a special midnight session of parliament under the leadership of Prime Minister Modi and President Pranab Mukherjee.
Speaking at the GST rollout ceremony at the Central Hall in Parliament House in New Delhi, the Prime Minister said the GST, in reality, means ‘Good and Simple Tax’, reported PTI.
"In a short while, India will move towards a new direction. We are deciding India’s future course,” the Prime Minister said. “GST is such a system which is easy, and will seek to stop black money and corruption, the Prime Minister added. PM Modi also said the tax reform will eliminate compounding effects of multi-layered tax system," he added.
“India is an example of cooperative federalism. It is the result of long and continuous thought process,” the Prime Minister said ahead of the launch during a special ceremony in the Central Hall of Parliament.
“GST is a transparent and fair system that prevents black money and corruption and promotes new governance culture,” said PM Modi, highlighting that the GST was a result of combined efforts of all political parties.
“GST is a result of a long thinking; all states along with Centre discussed for years,” said Modi.
Invoking Sardar Vallabhai Patel, the country’s first home minister, Modi said, “the GST is an economic integration of India just like what Sardar Vallabhbhai Patel had done decades back to integrate the country.”
President Mukherjee, who spoke at the event after the Prime Minister, said the tax reform is a tribute to India’s democracy.
“GST is a tribute to the maturity and wisdom of India’s democracy,” said Mukherjee. The President went on to say he was confident that GST tax reform will become a reality in the country. “This historic moment is culmination of a 14-year-long journey,” President Mukherjee said. “I was confident GST is a matter of time,” he added.
Modi said the new system of taxes, an overhaul 10 years in the making that will turn the country of 1.3 billion people into one market for goods and services for the first time.
From Saturday, all goods and services will be placed in one of five different tax brackets -- from 0 per cent for most agricultural and food products to 28 per cent 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 complete multiple forms and pay officials.
Introducing GST will cut red tape and increase tax revenues, fuelling economic growth, reported BBC, citing the Finance Minister Arun Jaitley.
Under the new system, goods and services will be taxed under four basic rates - 5 per cent, 12 per cent 18 per cent and 28 per cent.
Some items like vegetables and milk have been exempted from GST, but will still be subject to existing taxes. The price of most goods and services are expected to increase in the immediate aftermath of the tax.
Analysts expect economic growth to slow down over the next few months, but say it should pick up after the tax is fully implemented.
"No country of comparable size and complexity has attempted a tax reform of this scale," Harishankar Subramanian, of Ernst and Young previously told the BBC.
Many do not even have a computer to register on the GST network.
"We should be looking at this as a really 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.
The International Monetary Fund forecasts that the GST will eventually lift India's gross domestic product growth back above 8 per cent. It slipped to 6.1 per cent last quarter following the country's massive cash ban last year.
