India’s big tax reform
03-Jul-2017


On Saturday, 1 July 2017, India introduced a ground-breaking tax reform law, through a constitutional amendment.

The Goods and Services Tax (GST) introduced through the Constitution (One Hundred and First Amendment) Act 2016 has finally come through. And it is the ‘biggest tax overhaul’, since India’s independence in 1947, passed after months of debate in Indian Parliament.

This is a Value Added Tax (VAT), and is proposed to be a comprehensive indirect tax levy on manufacture, sale, and consumption of goods and services at the national level.

VAT had been already in vogue in India for several years. But this new GST will replace the old VAT system, with a newer tax structure, across a wide range of goods and services throughout the country.

It is a momentous event because India is the second largest country in the world, on population. And also because the revenues of the state and central (federal) governments - and thereby the stability of India’s future - are undeniably wedded to this tax reform.  

It will also replace all indirect taxes levied so far, on goods and services, by the Indian Central and state governments.

Unlike in the past, this GST is likely to be much simpler. This could benefit suppliers, traders and customers by making it clear to them, on invoices and receipts, how much they are paying, and for what. The various old accounting heads will now go.

With clear explanation of percentages, on which portion is to go to central government funds and which one to state, the revenue departments would find it easier to collect what is due to their respective governments.

But, I think, with different slab rates, for different industrial sectors, and for different product categories, it could take a while for all shops and establishments to adapt to the new tax structure and systems.

Confusion, therefore, reigned in many cities when the law came into effect on the midnight following 30 June; especially, with small and medium business bearing the brunt of this new law.

There has been a sudden scramble for changing of price tags, changing of computer software systems, printing of bills, invoices and receipts, all of which will, obviously, frustrate the ones involved.

But, we know that India has one of the lowest tax-to-GDP ratios in the world. So, reining in higher revenue, in an easier way, is really the need of the government. Many welfare schemes of the government cannot come to fruition without additional revenue.

Now, with the rising middle class, and with the decreasing poverty, maybe, the time is ripe for India to take this bold decision, of ensuring better taxation.

With growing digitization, it will also effectively discourage those who had been evading tax. Those who had been into spurious bookkeeping, without revealing the full extent of their business performance, will now come into the open.

In the short run, there could be teething problems, but in the long run, this change in taxation could bring about a sure-shot economic benefit to the country.

But as in many cases, it is not only in the passing of a law to collect revenue, but it is also in the implementation of the same, that would bring in needed returns to the treasury.

Education and training too, particularly for small traders, is critical.

And if all goes well, maybe Prime Minister Narendra Modi will go down in history as one of those great prime ministers who modernised Indian economy.


Related Articles

India Rises on the Global Platform
Feb 12

India Rises on the Global Platform

Once again, the Indian Prime Minister Narendra Modi was on a tour abroad. And once again, he became the flag bearer of Indian pride, as it keeps rising up, on the global platform. He reciprocated the warm receptions he has received in all the places he visited this week -  Jordan, Palestine, UAE and Oman, in...

Read More
Bahrain: A Story of Growth and Coexistence
Dec 17

Bahrain: A Story of Growth and Coexistence

“Bahrain is at the forefront of the global development race according to performance indicators in all fields of work,” said His Majesty King Hamad bin Isa Al Khalifa at a celebration, in Sakhir Palace on 16 December. This came from the event commemorating the 46th National Day, and the 18th Anniversary...

Read More
Eqypt’s Mosque Massacre: Is there value for Life?
Nov 27

Eqypt’s Mosque Massacre: Is there value for Life?

Friday’s massacre of 305 innocent worshippers, with 27 children among them, is horrific news that has devastated the hearts of Egyptians across their country.   And with them, the hearts of all of us - in the region and in the world - are also shaken. I cannot imagine how heartless and ruthless those 25...

Read More
Iran and regional instability
Nov 13

Iran and regional instability

Two incidents which happened in the last few days prompt this piece of writing. Firstly, the ballistic missile fired on Saturday 4 November, from Yemen towards the international airport of the Saudi capital Riyadh. It was thankfully intercepted and destroyed. But the missile is an open act of aggression. And Saudi...

Read More
Catalonia: Is separation a solution?
Oct 30

Catalonia: Is separation a solution?

The Catalonia Crisis is just one of the many news-stories that make us wonder; if separation is indeed a solution to political problems of some nations. The pronouncement of independence from Spain, on Friday 27 October, is not receiving the response the Catalonian Regional Parliament had expected, from other key...

Read More
Diwali : Crown Prince lights up a relationship
Oct 23

Diwali : Crown Prince lights up a relationship

This country is unique in many ways. And one of them is the respect and appreciation it shows towards people of other religions and cultures. We can see it clearly from the way His Royal Highness the Crown Prince always makes it a point, every year, to meet and greet Indian families for Diwali - the festival of...

Read More