India praised as it approves goods and services tax

An Indian consumer goods trader shows letters GST representing Goods and Services Tax (GST) at his shop in Hyderabad. AFP

Indian business leaders in the UAE have praised India’s passage of a long-awaited goods and services tax (GST) bill, paving the way for the biggest tax reform in the country since independence.

GST is a single tax designed to replace the convoluted system of different taxes across states in India, effectively transforming the country into a common market. The GST constitutional amendment bill was finally passed by the upper house of parliament on Wednesday evening. This is seen as a victory for the prime minister Narendra Modi’s government.

“I think this is the biggest game changer in the history of India’s economy and will surely bring in many positive changes in every aspect of business, right from the ease of doing business to solving logistical challenges in the movement of goods to the taxation regime,” said Yusuffali MA, the chairman of Lulu Group, based in Abu Dhabi.

The tax regime was first proposed a decade ago, but political wrangling delayed its progress.

Mr Yusuffali added that the move “sends a very strong message of India’s pro-development economic policies to the world. I think it could not have come at a better time, with India being seen as one of the most important destinations for investment”.

The government is hoping to roll out GST on April 1, next year. The rate of the tax is still to be determined, but a government-appointed panel has suggested that it should be between 17 and 18 per cent. At least half of the states will need to approve the bill before it can become law, but the government is confident of achieving this quickly.

But there are also some concerns that the implementation of the tax could be challenging and it may have a negative impact in the short term.

“Tax rates under GST are likely to increase for services and decrease for goods,” the Morgan Stanley analysts Chetan Ahya and Upasana Chachra wrote. “There could be some negative impact on growth in the near term. However, we expect medium-term growth to be boosted, helped by better allocation of resources, plus improving efficiency of domestic production and exports.”

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