Indian businesses brace for biggest-ever tax reform
Country to launch GST on July 1, small businesses say tax too complicated
PHOTO: REUTERS
MUMBAI:
Businessman Pankaj Jain is so worried about the impending launch of a new sales tax in India that he is thinking of shutting down his tiny textile factory for a month to give himself time to adjust.
Jain is one of millions of small business owners who face wrenching change from India’s biggest tax reform since independence that will unify the country’s $2 trillion economy and 1.3 billion people into a common market.
But he is simply not ready for a regime that for the first time, from July 1, will tax the bed linen his 10 workers make and require him to file his taxes every month online.
“We will have to hire an accountant - and get a computer,” the thickset 52-year-old told Reuters as a dozen ancient power looms clattered away in the ramshackle workshop next door.
Prime Minister Narendra Modi’s government says that by replacing several federal and state taxes, the new Goods and Services Tax (GST) will make life simpler for business.
Not so simple
By tearing down barriers between India’s 29 states, the GST should deliver efficiency gains to larger businesses.
HSBC estimates the reform could add 0.4% to economic growth. Yet at the local chapter of the Indian Industries Association (IIA), which groups 6,500 smaller enterprises nationwide, the talk is about how to cope in the aftermath of the GST rollout.
“In the initial months, there may be utter confusion,” said Chairman Ashok Malhotra, who runs one firm that manufactures voltage stabilisers and a second that makes timing equipment for boxing contests. A big concern is the Indian GST’s sheer complexity - with rates of 5, 12, 18 and 28%, and myriad exceptions, it contrasts with simpler, flatter and broader sales taxes in other countries. The official schedule of GST rates runs to 213 pages and has undergone repeated last-minute changes.
“Rubber goods are taxed at 12%, sporting goods at 18%. I make rubber sporting goods - so what tax am I supposed to pay?” asks Anurag Agarwal, the local IIA secretary.
Grace period
The top government official responsible for coordinating the GST rollout rebuts complaints from bosses that the tax is too complex, adding that the IT back-end that will drive it - crunching up to 5 billion invoices a month - is robust.
The government will, however, allow firms to file simplified returns for July and August. From September, they must file a total of 37 online returns annually - three each month and one at the year’s end - for each state they operate in.
Demonetisation 2.0
The prospect of disruption is drawing comparisons with Modi’s decision last November to scrap high-value banknotes that made up 86% of the cash in circulation, in a bid to purge illicit “black money” from the system.
The note ban caused severe disruption to India’s cash-driven economy and slammed the brakes on growth, which slowed to a two-year low in the quarter to March.
Published in The Express Tribune, June 29th, 2017.
Businessman Pankaj Jain is so worried about the impending launch of a new sales tax in India that he is thinking of shutting down his tiny textile factory for a month to give himself time to adjust.
Jain is one of millions of small business owners who face wrenching change from India’s biggest tax reform since independence that will unify the country’s $2 trillion economy and 1.3 billion people into a common market.
But he is simply not ready for a regime that for the first time, from July 1, will tax the bed linen his 10 workers make and require him to file his taxes every month online.
“We will have to hire an accountant - and get a computer,” the thickset 52-year-old told Reuters as a dozen ancient power looms clattered away in the ramshackle workshop next door.
Prime Minister Narendra Modi’s government says that by replacing several federal and state taxes, the new Goods and Services Tax (GST) will make life simpler for business.
Not so simple
By tearing down barriers between India’s 29 states, the GST should deliver efficiency gains to larger businesses.
HSBC estimates the reform could add 0.4% to economic growth. Yet at the local chapter of the Indian Industries Association (IIA), which groups 6,500 smaller enterprises nationwide, the talk is about how to cope in the aftermath of the GST rollout.
“In the initial months, there may be utter confusion,” said Chairman Ashok Malhotra, who runs one firm that manufactures voltage stabilisers and a second that makes timing equipment for boxing contests. A big concern is the Indian GST’s sheer complexity - with rates of 5, 12, 18 and 28%, and myriad exceptions, it contrasts with simpler, flatter and broader sales taxes in other countries. The official schedule of GST rates runs to 213 pages and has undergone repeated last-minute changes.
“Rubber goods are taxed at 12%, sporting goods at 18%. I make rubber sporting goods - so what tax am I supposed to pay?” asks Anurag Agarwal, the local IIA secretary.
Grace period
The top government official responsible for coordinating the GST rollout rebuts complaints from bosses that the tax is too complex, adding that the IT back-end that will drive it - crunching up to 5 billion invoices a month - is robust.
The government will, however, allow firms to file simplified returns for July and August. From September, they must file a total of 37 online returns annually - three each month and one at the year’s end - for each state they operate in.
Demonetisation 2.0
The prospect of disruption is drawing comparisons with Modi’s decision last November to scrap high-value banknotes that made up 86% of the cash in circulation, in a bid to purge illicit “black money” from the system.
The note ban caused severe disruption to India’s cash-driven economy and slammed the brakes on growth, which slowed to a two-year low in the quarter to March.
Published in The Express Tribune, June 29th, 2017.