Businesses await India’s new goods and services tax system

The goods and services tax, which could become one of India’s most important economic reforms, is a uniform tax planned to replace a convoluted system of taxes and fees across India’s 29 states.

A market in Bangalore. India wants to simplify taxation and improve the ease of doing business across the country. Sanjit Das / Bloomberg

India has made progress on its long-awaited goods and services tax (GST), which is expected to benefit the retail sector and the wider economy.

The GST, which could become one of India’s most important economic reforms, is a uniform tax planned to replace a convoluted system of taxes and fees across India’s 29 states. The introduction of GST could improve India’s economic growth rate by up to 2 per cent, analysts say.

The passage of the GST bill has been stalled amid political opposition. But on Tuesday, India’s finance minister, Arun Jaitley, met state ministers and managed to make some headway.

The opposition Congress party has been holding up the passage of the bill and is demanding amendments. The union cabinet on Wednesday made two changes to the bill, scrapping an additional one per cent manufacturing tax and guaranteeing full compensation to the states for five years for any losses resulting from the introduction of the GST.

This is seen as a critical step towards the legislation being passed. The reform is expected to improve the ease of doing business and boost investment.

“With the GST knocking on the doors of India’s economic system, I see a positive impact on the retail and services sectors, given the implications it would have on economies of scale in production and bringing in more efficiency in the supply chain of goods,” said Mukesh Kumar, the vice president of Infiniti Malls based in Mumbai.

“By eliminating the cascading effect of indirect taxes, the overall cost of production will significantly decline, apart from encouraging more indigenous manufacturing, leading to increased employment in the sector.”

There are hopes the GST bill will be passed in the current session of parliament.

“The GST will make taxes more predictable and simple for large and multi-location organisations, and in the long run it will simplify processes,” says Sharad Venkta, the chief executive and managing director of Toonz Retail India, a children’s retail chain with 100 stores. “We have already planned a revised supply chain network for better efficiencies. It will be a win-win situation for business and customers.”

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