Fears On Introduction Unwarranted, GST Rollout Went Well: Foreign Media

A country rarely praised for its efficient bureaucracy, India has managed its biggest administrative reform in years pretty well. Its new goods-and-services tax, replacing 40 other taxes and levies, came into force earlier this month without undue disruption. Deserves to be a great success by this Policy -- but to make the most of it, the government still has work to do.

Prime Minister Narendra Modi's previous big idea -- declaring 86 percent of India's banknotes void overnight -- took the public by surprise and caused the economy to seize up. Employers couldn't pay wages and workers couldn't buy even basic staples. The full cost of the disruption is still being calculated.

After that, fears about the GST roll-out ran high. Too high, as it turned out. It helped that the plan was not a shock: Successive administrations had debated the idea for years.
The project is far from finished, for that reason partly. In excluding certain goods from the scheme, the central government has given state governments discretion to raise taxes on them at any time. To impose taxes and fees some states have already tried on products already taxed under GST, including automobiles and movie tickets. The infamous customs posts where truck drivers had to halt and fill out paperwork before crossing a state line have begun to come down -- but local officials can still clog the roads by demanding inspections or fees.

The new tax is also giving rise to new kinds of regulation. An "anti-profiteering" clause threatens companies with fines or closure if they don't pass GST-related savings on to consumers.

India's Aspirations

The whole purpose of GST all this is undermines -- to simplify a complex and fractured system. The design of the tax itself makes things worse. Long negotiations have produced a convoluted structure. Goods are divided into four or five different tax brackets (some are subject to additional "sin" charges as well), in ways that don't always make sense. At different rates are charged depending on how expensive Hotel rooms are; food at restaurants with air-conditioning is taxed at a higher rate than at those without. This will encourage companies to game the system and agitate for shifting their goods into lower brackets.  

The government should keep working on simplifying the system, as to head this off -- narrowing exemptions as far as possible and reducing the number of tax brackets to one or two.
The roll-out went well. But if the government wants this reform to be a lasting success, it can't afford to relax.  


The roll-out went well. But if the government wants this reform to be a lasting success, it can't afford to relax.







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