India makes economic leap

India has a US$2-trillion economy, and a consumer base totalling 1.3 billion people. It is now Asia’s third-largest economy, and together with China, projected to become one of the world’s two biggest economies in the years to come.

But it suffers from a messy, fractured plethora of indirect taxes, duties, surcharges and cesses which not only hinder the smooth and coordinated growth of its internal economy, but also offers uncertainty and additional red tape for the foreign investor.

That may be about to change. On Wednesday, after years of political posturing and inter-party disagreement between the ruling BJP and main Opposition Congress parties, the Rajya Sabha (India’s upper house of Parliament) passed the landmark goods and services tax (GST) (See Pg. 8).

Many believe the passage of this important law – which required a constitutional amendment, and which saw rare harmony between the government and opposition benches – is a key step in turning India into a true and huge single market

It is quite simply the most significant tax reform since independence in 1947 and subsumes India’s messy smorgasbord of duties into a single tax.

The GST is expected to:

  • ease a cumbersome tax system
  • help goods move seamlessly across state borders
  • curb tax evasion
  • improve compliance
  • raise revenues
  • spur growth
  • stimulate investment
  • make investing and doing business in India easier

The federal and state governments will jointly administer India’s dual GST. This means it will be a set of 38 different taxes:

  • a GST for each of the 29 states and seven federally administered union territories

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