Business

India’s bold GST reform expands tax base but too soon to celebrate?


Five years after its implementation, the simplified GST scheme has resulted in a record increase in tax collection in India.

Anand Purohit | Moment | beautiful pictures

It’s been five years since India introduced a Goods and Services Tax, and while government revenue has skyrocketed, some analysts say it may be too early to celebrate.

India – world’s fifth largest economy with more than 3 trillion dollars in GDP – has managed to double the tax base since the introduction of GST in July 2017.

While collections have increased and compliance has improved, analysts point out it has not necessarily led to economic growth.

The GST collection has grown from around 7.2 trillion rupees, or $90 billion, in fiscal year 2017-2018 arrive 14.8 trillion rupees for the financial year ending March 2022Government statistics show.

Although GST revenue is higher in absolute terms, some still question whether the revenue growth will last.

“GST cannot promote growth. Instead, growth promotes GST collection. Therefore, future collection of GST will depend on the growth performance of the Indian economy. If growth slows again, GST collection will be negatively affected,” New Delhi senior colleague Abhijit Mukhopadhyay of the think tank-based Observer Research Foundation told CNBC.

“Somehow, a rule of thumb has emerged that if the monthly GST collection crosses Rs 1 trillion or $12 billion, it’s a success,” he said.

Among other things, rising inflation is likely to reduce demand and lead to lower collections, Mukhopadhyay said. “Increased commodity and food prices have essentially contributed significantly to GST collection,” he said.

What India’s GST has achieved

Goods and services tax – enacted by Prime Minister Narendra Modi’s government – plus 17 local taxes such as excise tax, service tax and value added tax and 13 other fees.

Under the national tax regime, these taxes have been replaced by four tax rate structures, ranging from a 5% tax on essential items to a peak tax rate of 28% on things like cars and luxury items.

“GST remains a landmark tax reform of independent India, despite the many implementation problems experienced in the first five years,” Rajan Katoch, India’s former Minister of Heavy Industries, told CNBC.

Not only will it improve federal coordination, Katoch said, but it will also “improve tax buoyancy, curb indirect tax evasion, and attract more and more smaller taxpayers into the formal system.”

The introduction of the GST mechanism has helped to replace many indirect taxes to provide a clearer and more predictable structure.

Radhika Rao

Senior Economist and Managing Director, DBS Bank, Singapore

Impact on foreign investment, ‘black money’

There are differing views on whether the GST makes India a more attractive investment destination or is it effective in curbing “black money” – unclaimed and untaxed income. or not.

Black money has long been known to be a part of India’s economic activity. In 2012, the Indian Ministry of Finance issue a “white paper” on black money, defined by the government as “any income on which the government or public authority has not yet paid taxes.”

Former industry secretary Katoch claims that GST has had an impact on black money.

“Are from [GST] has led to the formalization of transactions that were previously informal, yes, it will lead to a reduction in black or unaccounted cash flows,” he said, adding that it is difficult to estimate reduction level.

But not everyone agrees.

“Black money is created in real estate, commerce and politics. In all three cases, cash transactions continued. Bankruptcy or tax reform had little impact,” said Sanjaya Baru, an economist based in New Delhi told CNBC.

Bankruptcy refers to the controversial move by the Modi government in 2016 to withdraw high-denomination banknotes as legal tender. as a way to release black money.

The government had hoped that tax reforms would increase India’s attractiveness to foreign investors, but this may not have come true, according to Baru, who was a media adviser to the former Prime Minister Manmohan Singh.

In theory, GST is supposed to make India more attractive to foreign investors, especially in the manufacturing sector,” he said. [foreign direct investment] in the manufacturing sector is not very impressive. “

GST cannot promote growth. Rather, growth promotes GST collection. Therefore, future collection of GST will depend on the growth results of the Indian economy.

Abhijit Mukhopadhyay

Senior Fellow, Observational Research Foundation, New Delhi.

The World Bank’s India’s Business Ranking has climbed to the position 63rd place in 2020 are from 100th place in 2017 – 37 steps up within 3 years.

While it cannot be directly attributed to India’s tax reform, tax pay is one of nearly a dozen factors used to measure the ease of doing business in the ranked countries.

“The administration’s reform efforts target all areas as measured by Business, with a focus on paying taxes, cross-border transactions and resolving defaults.” World Bank 2020 report says.

Political conflict ahead

Rising inflation is not the only cloud on the horizon for the GST program.

India is expected to make a precarious political decision in August on whether to bring gasoline, diesel and so-called “sin goods” such as alcohol and tobacco under GST, a tax associated state.

“Petroleum products should be included in the GST framework. That could significantly increase revenue and also reduce inflation,” said Mukhopadhyay from the Observer Research Foundation.

However, it is an ambitious goal and could become a political challenge. Taxes on these goods are currently collected by State governments are, in some cases, led by political opponents and will not be easily persuaded to give up this lucrative source of revenue.

Separately, the federal government is also facing other demands from state governments.

Since 2017, the federal government has compensated state governments for some of the tax revenue they lost due to GST.

That ended, on June 30, but the states are now seeking an extension, citing both ‘lost’ year of the pandemic,” Mumbai-based equity strategist at WealthMills Securities Kranthi Bathini told CNBC.

For Modi’s government, the request could be the start of a long political battle – even in states ruled by his ruling BJP or its political allies.



Source link

newsofmax

News of max: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button