India early on Saturday introduced its biggest tax reform in the 70 years since independence from British colonial rule.
The Goods and Services Tax (GST) replaces more than a dozen federal and state levies and unifying a $2 trillion economy and 1.3 billion people into one of the world’s biggest common markets.
The measure is expected to make it easier to do business by simplifying the tax structure and ensuring greater compliance, boosting Prime Minister Narendra Modi’s economic credentials before a planned re-election bid in 2019.
At a midnight ceremony in parliament’s central hall Modi and President Pranab Mukherjee together launched the new tax by pressing a button.
“With GST, the dream of ‘One India, Great India’ will come true,” Modi said.
For the first midnight ceremony in the central hall in two decades, Modi was joined by his cabinet colleagues, India’s central bank chief, a former prime minister and major company executives including Ratan Tata.
Indian Prime Minister Narendra Modi attends an event a day ahead of the implementation of the nationwide Goods and Services Tax (GST) in Ahmadabad, India, June 30, 2017.
The launch, however, was boycotted by several opposition parties including the Congress Party, which first proposed the tax reform before it fell from power three years ago.
Former Prime Minister Manmohan Singh – the architect of India’s economic reforms – also gave it a miss.
It has taken 14 years for the new sales tax to come into being. But horse trading to get recalcitrant Indian states on board has left Asia’s third-largest economy with a complex tax structure.
In contrast to simpler sales taxes in other countries, India’s GST has four rates and numerous exemptions.
The official schedule of rates runs to 213 pages and has undergone repeated changes, some taking place as late as on Friday evening.
Many businesses are nervous about how the changes will unfold, with smaller ones saying they will get hit by higher tax rates.
Adding to the complexity, businesses with pan-India operations face filing over 1,000 digital returns a year.
While higher tax rates for services and non-food items are expected to fuel price pressures, compliance is feared to be a major challenge in a country where many entrepreneurs are not computer literate and rely on handwritten ledgers.
“We have jumped into a river but don’t know its depth,” said A. Subba Rao, an executive director at power firm CLP India.
‘One Tax, One Market, One Nation’
Poor implementation would deal a blow to an economy that is still recovering from Modi’s decision late last year to outlaw 86 percent of the currency in circulation.
In a bid to mitigate the impact on the farm sector, the GST rates for tractors and fertilizer were slashed on Friday to 18 percent and 5 percent, respectively.
HSBC estimates the reform, despite its flaws, could add 0.4 percentage points to economic growth.
An end of tax arbitrage under the GST is estimated to save companies $14 billion in reduced logistics costs and efficiency gains.
As the GST is a value added tax, firms will have an incentive to comply in order to avail credit for taxes already paid. This should widen the tax net, shoring up public finances.
“The old India was economically fragmented,” Finance Minister Arun Jaitley said. “The new India will create one tax, one market for one nation.”
Text Courtesy: VOA NEWS
Pictures Courtesy: Wikimedia Commons
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 from July 1 will for the first time tax the bed linen his 10 workers make, and require him to file his taxes every month online.
On the desk in his tiny office in Meerut, two hours drive northeast of New Delhi, lay two calculators. Turning to open a metal cabinet, he pulled out a hand-written ledger to show how he keeps his books.
“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.
To drive home the point, Bollywood superstar Amitabh Bachchan has appeared in a promotional video in which he weaves a cat’s cradle between the fingers of his hands – symbolizing
India’s thicket of old taxes. With a flourish, the tangle is gone and Bachchan proclaims: “One nation, one tax, one market!”
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 percent to economic growth.
Yet at the local chapter of the Indian Industries Association, 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 stabilizers 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 percent, 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 percent; sporting goods at 18 percent. I make rubber sporting goods — so what tax am I supposed to pay?” asks Anurag Agarwal, the local IIA secretary.
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.
“It is a technological marvel, as well as a fiscal marvel,” Revenue Secretary Hasmukh Adhia told Reuters in an interview.
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.
One particular concern is how a new feature of the GST, the input tax credit, will work. This allows a company to claim refunds on its inputs and means it should only pay tax on the value it adds.
The structure will encourage companies to buy from suppliers that are GST-compliant, so that tax credits can flow down a supply chain.
That spells bad news for small firms hesitating to shift into the formal economy. The government estimates smaller companies account for 45 percent of manufacturing and employ more than 117 million people.
Adhia played down the risk of job losses, however, saying this would be offset by new service sector jobs.
The prospect of disruption is drawing comparisons with Modi’s decision last November to scrap high-value bank notes that made up 86 percent 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.
“It could throw the business out of gear – it can affect your volumes by at least 30 percent,” said the head of one large cement company in the Delhi region.
Back in Meerut, Pankaj Jain worries that hiring an accountant and charging 5 percent GST on his bedsheets could eat up to two-thirds of his annual profits of 400,000-500,000 rupees ($6,210-$7,760).
“I know my costs will go up, but I don’t know about my income,” he said. “I might even have to shut up shop completely and go into trading.”
Test Courtesy: VOA NEWS
U.S. President Donald Trump and Indian Prime Minister Narendra Modi are pledging to work together to boost security and trade ties.
The two countries “look forward to working together on advanced defense equipment and technology at a level commensurate with that of the closest allies and partners of the United States,” according to a White House statement issued Monday evening.
Declaring his talks with the president “very successful and very fruitful,” the visiting Indian prime minister gave his host a trademark bear hug in the White House Rose Garden when the two finished reading their respective statement. They did not take questions from the dozens of White House correspondents and the visiting Indian reporters.
Modi also announced increased cooperation on fighting terrorism, including enhanced sharing of intelligence.
“The top priority for both President Trump and I is to protect our societies from global challenges like terrorism, and our aim is to strengthen India and the United States, the two great democracies of the world,” Modi said alongside Trump.
The U.S. president said New Delhi and Washington can set an example for many other nations and make great strides in defeating common threats.
“We will destroy radical Islamic terrorism,” said the president.
Indian officials expressed appreciation for the U.S. designation of the Hizb-ul-Mujahideen leader as a Specially Designated Global Terrorist.
Trump and Modi, according to the White House statement, called on Pakistan to ensure that its territory is not used to launch terrorist attacks on other countries and requested Islamabad “expeditiously bring to justice the perpetrators of the 26/11 Mumbai, Pathankot and other cross-border terrorist attacks perpetrated by Pakistan-based groups.”
Combining both the security and economic relationship, an expected multi-billion-dollar deal for American surveillance drones for the Indian Navy will make a dent in the $24 billion trade imbalance in India’s favor.
The manufacturer of the drones, General Atomics, said it received clearance to sell the unmanned aerial vehicles to the Indian military – a deal estimated to be worth between $2 billion and $3 billion.
The White House Monday evening said the drones had been offered for consideration of sale to enhance “India’s capabilities and promote shared security interests.”
Meanwhile, the State Department has approved a possible sale of C-17 transport aircraft to India’s government. The Defense Security Cooperation Agency says it delivered the required certification notifying Congress of this possible $366 million sale on Monday.
The president on Monday did not specifically mention the drones or the cargo planes, but in a delegation meeting in the White House Cabinet Room Trump, flanked by his vice president and secretary of state, expressed appreciation for India ordering American defense equipment.
“There’s nobody makes military equipment like we make military equipment. Nobody even close. So, we want to thank you very much,” Trump said sitting across a conference table from Modi.
“What’s clear from this visit and the joint statement is that there is a fair amount of policy continuity in U.S.-India relations since the leadership transition in Washington,” the Wilson Center’s South Asia deputy director Michael Kugelman told VOA.
While Modi is touting a “Make in India” campaign, Trump is all about “America First.”
Analysts, such as Kugelman, say it is notable that the two leaders directly referenced such potential tension points.
“Clearly Modi and Trump believe that economic and trade cooperation need not be as tricky as some may assume,” said Kugelman.
Although this was not billed as a state visit, U.S. officials emphasized they rolled out the red carpet for the Indian prime minister. And Modi was the first foreign leader for whom Trump hosted a dinner at the White House.
Text Courtesy: VOA NEWS
….Many naive folk think demonetisation will deal a body blow to black money and shift India towards a clean, cashless economy. Sorry, but the benefits will be limited. Black money is both a stock ( that is, a hoard of past untaxed money) and a flow ( the constant generation of fresh untaxed income).
As a stock, probably not even 2 percent of historical black hoards are held in cash- almost all have been converted to gold, real estate through inflation, so no savvy person holds large hoards. The vast bulk is converted into assets across the world and much is brought back to India ( Via Mauritius and othjer legal routes) to be invested in Indian shares and real Eestate. The voerwhelming stock of black money has been laundered into white ages ago.
-Excerpt from SWAMINOMICS BY SWAMINATHAN S ANKLESERIA AIYER SUNDAY TIMES OF INDIA, NOVEMBER 13 2016
“…..We see the PM ( Narendra Modi) embrace global celebrities, we have yet to see him embrace a drought stricken farmer in Latur or a protesting student in Hyderabad………… Social media is abuzz with Modi’s messages, yet the PM is remote, inaccessible figure, preferring a flood of tweets to a flesh and blood press conference…...“
Excerpts from the commentary of Sagarika Ghosh, Sunday Times of India, June 5, 2016