India takes the first steps to overhaul its tax system. Twenty-five years ago many of the tax laws went to the states. That led to each state having its own rules. It made growing industry within India hard to do.
For years whichever party was ruling Congress opposed tax reform. The reason was political. It took power away from the states. Prime Minister Narendra Modi made reform his big issue. He won over the upper house of Parliament. There are hurdles ahead. But reform is now on its way.
It is a major event. The Goods and Services Tax (GST) goal is the growth of jobs. About a million people a month enter the workforce. Economic growth in the private sector is the key to jobs. The biggest impact will hit around 2019.
In one sense it is like India creating a common market within the country. One expert said it is the opposite of “Brexit.” That is the vote that took Great Britain out of the European Union. Observers note that the road ahead will not be easy. The law will be complex. It will be hard to administer the law in a smooth way.
Experts say it will be worth the effort. A businessman said, ”Most of the time we are busy complying with those tax formalities. We do not find time to do business.”
The new law will replace 15 existing state and federal taxes. It will increase economic growth by between 0.5 and two percentage points.
In the long term, the law should attract foreign investment. It will bring down the cost of goods. Manufacturing, exports, and tax collections will all improve.
It is a great political victory for Prime Minister Modi.
Source: The New York Times August 3, 2016