1. GST is a big achievement and a game-changer for PM Modi’s economic reforms

GST is a big achievement and a game-changer for PM Modi’s economic reforms

GST will replace a welter of state levies that imposed heavy burdens on commerce that crossed domestic borders, creating a single market of 1.3 billion people.

By: | New Delhi | Updated: November 4, 2016 5:41 PM


GST With the introduction of Goods and Services Tax, many taxation procedures will come down, nearly halving the cost of inventory as customers will not need to pile up stocks in different warehouses, say experts. (Reuters)

India has backed a multi-tier national tax regime that even in its not-so-perfect form will be a game-changer for Prime Minister Narendra Modi, who is trying to revive manufacturing and boost foreign investment in the world’s fastest growing major economy.

Moving away from the ‘one market, one rate’ tax model, the Goods and Services Tax Council decided on standard rates of 12 percent and 18 percent and two more rates of five percent and 28 percent for the tax’s implementation. Officials are still meeting to finalize details of which goods and services will fall into each bracket.

Finance Minister Arun Jaitley said a zero tax rate would apply to 50 percent of items in the retail inflation basket to protect consumers from price rises on goods such as food grains. Tobacco products will continue to be taxed at 65 percent, he said, adding luxury goods will also be taxed at a higher rate.

The taxes will replace a welter of state levies that imposed heavy burdens on commerce that crossed domestic borders, creating a single market of 1.3 billion people.

And while the ideal single tax rate system is a long way off, a multiple-rate GST was the only way a complex, politically diverse country like India could proceed, Pratik Jain, Indirect Tax Leader, PricewaterhouseCoopers, said by phone.

“It will appear that the Indian government is serious about reforms and that gives confidence to investors,” he said, noting many companies had put investment decisions on hold until the path of the GST was clarified.

“While it’s not perfect, the government should attempt over a period of time to consolidate those four slabs into two.”

The progressive nature of the GST structure should temper any adverse short-term inflationary and growth impacts, said Tamara Henderson, an economist with Bloomberg Intelligence.

“Excluding half of the items in the CPI calculation will protect the spending power of lower income households, which tend to have a higher propensity to consume disposable income than wealthier groups,” she said.

Given Modi’s earlier promises to reform India’s land and labor laws had failed, the success of the GST was even more of a priority, said Michael Kugelman, a senior associate at the Washington, D.C.-based Woodrow Wilson International Center for Scholars.

“This is a big achievement for Modi’s economic reform plan,” Kugelman said. “Now that it’s gone through, it’s an important for the government to get it right. And that entails being appropriately pro-business while not penalizing the poor. The stakes are quite high.”

The government confirmed it was intent on meeting its self-imposed April 1 deadline for the tax’s implementation, close to the crucial elections in the state of Uttar Pradesh.

“Next year, we’re going to see elections. At the moment, they made sure that the inflation basket –- one of the key worries –- would be impacted minimally with the implementation of the GST,” said Tirthankar Patnaik, India Strategist with Mizuho Bank Ltd.

“Political exigencies have forced the divergence between essential goods and so-called ‘sin’ goods,” he said, adding luxury and ‘sin’ products such as tobacco subsidize the tax exemptions on basic food, such as grains, for the poor.

However until the government releases the rate structure for the proposed list of goods it will be difficult to say who will gain and who won’t, Krishan Arora, Partner, Grant Thornton India LLP, said by phone.

Ultimately, it is a significant reform that will allow India to form one common market, Arora said. “Indirect taxes today lead to multiple administrative burdens. A GST will make India a competitive market for exports globally.”

Political bickering had held up the constitutional amendment in India’s upper house of parliament for more than a year until it was approved in August. The GST, initially proposed by the main opposition Congress party a decade ago, is expected to lower the cost of doing business in India.

There will inevitably be teething problems, Patnaik said. “The first two years, you’ll have mighty chaos. Once those basic troubles are ironed out, I think we should see a significantly easier flow of goods between states.”

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  1. A
    Nov 5, 2016 at 4:15 pm
    Greatest achievement ever in Indian history
    1. G
      Nov 6, 2016 at 5:49 am
      Peiesh help me my many rifand car bazar sir maine car bazar me car book kiya tha lekin car bhi nahi meli aur 3lekh dawonpement 7lekh lone bhi le liya 8manth ho gya hai car nahi diya aur mera paisa bhi nahi de raha hai police camplent karne gya to police ne gali de kar baga diya sir pies help me
      1. P
        Pardeep makkar
        Nov 6, 2016 at 2:56 am
        Modi ji you have done a wonderful job,but there is also need of medical insurance at low cost or as foringn country concept ( in foreign country people have medical insurance free from govt or at less cost)so that people can be without tension from uncertainty.. Whether it is possible...Pardeep Makkar advocate Sirsa haryana 7876363000/7876133000.
        1. R
          Rishil P
          Nov 5, 2016 at 9:48 pm
          50% tex is very best in tobacco . I have 2 store in Nardipur Gham Ta:- kalol Dist:- Ghandhinagar Pin:-382735Mo:-8735991691
          1. D
            Dinesh Prakash
            Nov 5, 2016 at 10:47 am
            Opinion expresses is wrong.GST will enhance cost of living.It will hamper unorganised sector with the result unemployment and under employment in huge quany will be generated out of unorganised sector. One tax slogan is illusory. Wide powers given to the officials will eat unorganised medium and lower middle sectors.At least three essments and dealing with two departments will be onerous and cause harment.It is not GST in true sense.It colourable.
            1. D
              dipti kumari
              Nov 6, 2016 at 4:31 am
              Dipti kumari jha sir.plz please govt job plz help me narendramodi ji plz help me my family problems. I am seeking a challenge career. i aspire to reach my profession through my determination. dedication and hard work. to pursue my professional career. i am looking for an opportunity with a growing organisation where I can enhance success in organization's growth. plz govt job plz narendramodi ji plz help me. Phone number 9007541417 jai hind.
              1. G
                Nov 6, 2016 at 1:16 am
                Very important role
                1. Mahesh Kumar Rathi
                  Nov 6, 2016 at 4:35 am
                  आप व्यापारी वर्ग से काले धन को कम करने के लिए gst ला रहे हो। देश की सुरक्षा के लिए, जरुरी नहीं की सारा प्राइवेट धन सरकार की तिजोरी में जाए और वो सरकार अपनी आमदनी का 65 %खर्च अपने कुछ 50 लाख central govt के कर्मचाइरो पर shower करे। यह बहुत बड़ी मूर्खता का काम होगा। आप हर दुकानदार के पॉकेट को टटोलने जा रहे हो। और भारत जैसे राष्ट्र में, जो सदियो से , अपनी सुरक्षा नहीं कर पाया है, उसके नागरिको से उम्मीद करते हो, वो अपनी सुरक्षा के लिए , कुछ काला धन नहीं रखे आप केवल भारत के राज्यो में mla पर रेड करवा पाएंगे ?इतना काल धन सबके पास है, जो की भारत के वर्तमान इनकम टैक्स से ज़्यादा है। आप उनको तो छुएंगे नहीं। बस जनता के पीछे पड़ना है। कभी gst के नाम, कभी गैस सब्सिडी के नाम, कभी रेल किरायों को हवाई सफ़र की तरह dynanic pricing के नाम, जनता को कैसे गुस्सा आये,आपको अच्छे से आता है।
                  1. Rajesh R Upadhyay
                    Nov 5, 2016 at 12:53 pm
                    Sure it is.
                    1. R
                      Nov 6, 2016 at 3:28 am
                      This is one of the good way to achieve equality and reduce poverty in India.
                      1. S
                        Sanjay Mahale
                        Nov 5, 2016 at 5:17 pm
                        Nice move in Indian progressive Economy.
                        1. V
                          Nov 6, 2016 at 4:02 pm
                          Q dipti fake profile Bana ka kuch jada hi secure fell ho rha hi na?
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