India launches new single nationwide tax
India’s Parliament held a special midnight session Friday to introduce a new single nationwide tax, replacing a complicated mix of state and federal taxes that will change the cost of nearly everything people buy.
India’s president and the prime minister pressed a button heralding the major overhaul of the taxation system — known as the single Goods and Services Tax — from July 1.
Prime Minister Narendra Modi said in a speech that the new system would eliminate 500 types of taxes in favor of one tax across the country, a catalyst that would remove trade imbalance and promote exports.
“GST is a simple, transparent system which prevents generation of blackmoney and curbs corruption. The system gives opportunity to honesty and people who do honest business,” he said.
The main opposition Congress and some other parties boycotted the midnight ceremony, arguing that nearly 7 million traders needed more time to prepare for the new system as they would be required to file tax returns every month. The opposition, however, supported the new tax system.
India’s Chief Economic Adviser Arvind Subramanian was confident of resolving teething problems of the implementation in a month or two.
“There will be some hurdles initially. But we will be able to remove them in 1-2 months,” Subramanian told reporters.
The government published lists last month showing almost every item for sale in India, from shampoo to tea to automobiles, should be taxed within four broad categories — at rates of 5 percent, 12 percent, 18 percent or 28 percent. It had already ordered all businesses in January to adopt or upgrade cash registers and computer systems so they are able to file tax returns that comply with the new tax regime.
Most of India’s 29 states have passed local laws to implement the new tax regime, but some have pleaded for more time. The government dismissed that idea, but at least one industry grouping — the Associated Chambers of Commerce and Industry of India — urged a delay, saying the government’s own computer networks are not yet ready for the change.
First proposed in 2003, the idea was bogged down for years in bipartisan debate, with various governments trying to push it forward while opposition politicians dragged it back. Before Modi and his Bharatya Janata Party came to power three years ago, they were staunchly against the move.
Some opposition parties asked the government to delay implementation of the new system until October as Indian businesses were still recovering from the government’s snap decision to remove 86 percent of its currency from circulation overnight on Nov. 8. In the months that followed, India replaced the old currency notes with newly designed bills. But the move caused chaos within the country’s cash-dependent economy, hurting industries like construction and tourism, and hitting poor people the hardest.
On Friday, at a crowded New Delhi market plastered with posters announcing massive sales, shoppers were vacuuming up household gadgets and high-end electronics in the last days before the new sales tax took effect.
Nafees Ahmad scoured the stores for a new air-conditioner and LED television set with his wife and teenage son in tow.
“Our TV is fine. We did want to buy a new one, just not this soon,” he said with a smile as he checked prices at the Electronics Paradise store. “But when the GST is applied everything will cost more so we decided to just go ahead and buy it now.”
He may even splurge on a new oven and a few other items if the prices were low enough, he added.
India has debated such a tax for over a decade. While economists mostly agree a single, nationwide tax will streamline business, there are concerns about how an economy as unwieldy as India’s will transition to a system that involves filing monthly tax returns online.
It was hard for Indian shoppers to know what the cost of almost anything will become Saturday because prices vary by brand and the current taxes varied from state to state. Refrigerators and air conditioners were among items likely to cost much more; they’ll be taxed at the top rate of 28 percent while the highest tax applied in any of India’s states now is 23 percent.
Even at large multi-brand retail stores like Electronics Paradise store managers are uncertain about how things will unfold as they transition to the completely untested system.
The massive sales preceding the deadline benefit both buyers and sellers. Shoppers get bargains, and retailers avoid incurring fresh taxes on old inventories.
“We want to clear our stocks and bring our inventories to zero so that we don’t have to pay new taxes on existing goods,” said Anuranjan Thakur, manager of the Electronics Paradise store in the Lajpat Nagar market.