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One of the world's most complex tax reforms - India's GST



The following are some of the benefits in adopting GST:
  • ease a cumbersome tax system
  • help goods move seamlessly across state borders
  • curb tax evasion
  • improve compliance
  • raise revenues
  • spur growth
  • stimulate investment
  • make investing and doing business in India easier
The reforms are far more complex and cumbersome when compared to other nations.It is also the most significant tax reform since independence for what is now Asia's third largest economy.
Some 160 countries, according to consulting firm Deloitte, have some form of GST or value added tax.The federal and state governments will jointly administer India's dual GST. This means it will be a set of 38 different taxes:
  • a GST for each of the 29 states and seven federally administered union territories
  • a federal GST
  • an integrated GST on inter-state supplies of goods and services
Indian software giant Infosys is building a gigantic electronic infrastructure - a GST portal - where taxpayers can register, make payments and file returns. Some 7.5 million businesses will be covered by the tax.

"No country of comparable size and complexity has attempted a tax reform of this scale," says Harishankar Subramanian, of Ernst and Young.

Small businesses are not ready and don't have any clear ideas regarding the new tax structure and reforms.

The GST is also a potential game-changer as the burden of taxation moves from the state of manufacture to the state of consumption of goods and services.

Experts believe fears that revenues of manufacturing hubs - such as Gujarat and Maharashtra - will be hit are unfounded as such states attract more workers, who make up a growing base of consumers.
But some of the biggest beneficiaries, they say, will be populous, manufacturing-weak states - Bihar and Bengal, for example - who have a large number of consumers.
"By and large, it is a win-win situation for both the centre and and the states," says Mr Subramanian.

Revenue Secretary Hasmukh Adhia and economic adviser Arvind Subramanian are of the opinion that no country has claimed a flawless GST since inception, and further and better change in complex systems is incremental.

But India's GST is not so perfect as the tax will not be imposed on highly lucrative - and rent-seeking - alcohol, oil products and real estate industries. Shrinking the ambit of the tax means giving up a good chunk of revenues.

A steep tax could easily make some goods and services expensive - the government apparently favours an 18% GST rate - and stoke inflation.

Differences could easily flare up between the centre and the states over the rate and tax-sharing arrangements.
Reports say only 20% of companies are actually getting ready for the tax.

The tax will help goods move seamlessly across state borders, also, more importantly, GST, by itself, is no magic pill.

The government should move swiftly and imaginatively on creating jobs, boost agriculture and ensure social stability for long-term and inclusive growth.

India also needs to collect a lot more income tax - only 1% of Indians pay the tax and evasion is pervasive. 

Successive governments appear to be helpless in reforming a corrupt tax-collection machinery.

But most believe that even an imperfect GST law should be given a chance to succeed.

The concept of "One nation, One tax"gets going, there is a tough journey ahead.
 
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