At midnight on Friday, India will introduce nationwide goods and sales tax with Prime Minister Narendra Modi taking centre-stage in parliament for what will be the country’s biggest tax reform in the 70 years since independence from British colonial rule. The GST will replace about 20 federal and state taxes such as factory-gate duties, service and local taxes while unifying $2 trillion economy and 1.3 billion people into a single market. Modi, a Hindu nationalist politician who swept to power in 2014 promising reforms to get India’s lumbering economy moving, will use the occasion to make a landmark speech.
Somewhat predictably, not everyone in the world’s largest democracy is happy. Even though the Congress Party first proposed the tax reform before it fell from power three years ago, it has been left wringing its hands over whether to join the parliamentary applause for a tax that should make India a far easier place to do business. Mamata Banerjee, the firebrand leader of All India Trinamool Congress, certainly won’t be clapping.
The firebrand leader of the regional party governing West Bengal intends to boycott the event, saying the ill-planned launch will hurt small enterprises across the country. “A chaotic situation may arise in our vast economy,” Banerjee told reporters in Kolkata, adding millions of small businesses were not yet ready to file multiple tax returns, and it could take up to six months to smoothly implement the legislation.
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Thousands of textile mills and retailers across the country went on strike this week to protest the tax. Small businesses in particular are unhappy at the extra demands made of them to be tax compliant during the change-over. Finance Minister Arun Jaitley has given businesses two months leeway to file late returns during the switch to GST. A massive media campaign has been launched by the government to create awareness, with telephone help lines opened to address public concerns.
So far, more than three-quarters of the 8.1 million firms registered with the federal and state tax departments have enrolled with the GST Network, a massive IT back-end that will process up to 5 billion invoices a month. Millions of small businesses, outside the tax net earlier, still have to join the network, and an umbrella organisation pleaded for them to be given more time. “For a seamless implementation of the law, the government should relax rules against traders for procedural lapses for six to nine months,” Praveen Khandelwal, secretary general of the Confederation of All India Traders, said. About a third of association’s 60 million members lack a computer to register under the new tax regime.