India on Wednesday (03 August) moved a step closer to a goods and services tax (GST) -- termed as the biggest tax reform since Independence -- after the Rajya Sabha passed a constitutional amendment bill that aims to merge its 29 states into a $2-trillion pan-India common market with 1.3 billion consumers.
"The government has taken a giant economic leap by passing the GST bill. In one bold move, this will unify India’s tax architecture, make manufacturing efficient, and boost Ease of Doing Business, thus ushering a virtuous growth cycle in India for several decades up to 2050. Implementation of GST in one sweep will lead to efficient allocation of resources, smoothen supply disruptions, harness inflation, aid tax buoyancy and improve compliance, thereby reinforcing conviction in 'Believe in India'," said Rana Kapoor, founder and managing director of Yes Bank.
- Implementation of GST is expected to transform a complex, multi-layered and cascading indirect tax system to a single unified indirect tax system which would permit tax set off across the value chain, both for goods and services.
- As ease of doing business improves, India’s attractiveness as a preferred investment destination is expected to get a boost aiding further inflow of FDI. In the medium term, this is expected to be growth positive.
- While the Bill has been cleared by the Upper House of Parliament, successful implementation by 1st April 2017 would require passage by 50 per cent of states along with effective execution of the IT infrastructure needed for seamless transition to the new regime.
- We believe, while the hurdle of passage in the Upper House (where the government lacks majority) has been crossed, in the near term challenges include consensus building on contentious issues such as GST rate, exemptions, threshold limit and calculation of compensation would continue to linger. These have to be recommended by the GST Council.
