Industrial owners have guarded excitement at the prospect of new reforms, while experts warn of inflation worries in the near-term that could mean a political headache for Modi’s ruling party.
NEW DELHI — The global and Indian business community is keeping a close watch as the Indian Government is racing towards an early implementation of the goods and services tax (GST) regime.
Negotiations are cautiously coming to an end between the provinces and the cities on the sharing of tax revenue under the new GST system.
In theory, a country-wide uniform tax system would drastically improve the ease of doing business in India. Currently different tax rates in every province leads to extensive paperwork for the established players and general incomprehension for new entrants.
However, the four tax codes suggested by the GST Council have already come under fire. Some have called them “too complex” and create a potential nightmare for implementation.
The sentiment was captured in an editorial in India’s leading business newspaper the Economic Times, which wrote, “The limited time available to configure complex income-tax systems to comply with the tax is a challenge. Australia gave companies a clear 12 months to comply with the tax after the rules were finalized and made public.”
Others also sounded the alarm bell. “GST may be inflationary in the short-term as it’s a consumption based destination tax. That is the experience of many counties that have implemented it. It will have a bearing on consumer price inflation,” cautioned D.K. Joshi, chief economist at Indian ratings agency Crisil.
A spike in the consumer price index triggers worries of a consumer backlash. Political parties are usually prepared for nominal inflationary pressures. But no government, both in the cities and the states, can risk fueling price rises and hurting its political prospects in the polls.
Experts don’t disagree with this prognosis but highlight GST’s long-term benefits. “The positive effect of GST on growth will manifest over time through multiple channels,” said Saugata Bhattacharya, chief economist at Axis Bank, in a TV interview.
Global retail major Walmart welcomed the GST tax structure but PepsiCo and Coca Cola took a cautious approach in their press statements.