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Some warn that flaws in the new system could kill Prime Minister Narendra Modi’s reputation as a modernizer  with a talent for delivery.
Some warn that flaws in the new system could kill Prime Minister Narendra Modi’s reputation as a modernizer  with a talent for delivery.

Modi’s India to Unveil Largest Tax Reform

Observers have described the reform as the most meaningful change to India’s tax regime since the country became independent in 1947

Modi’s India to Unveil Largest Tax Reform

One of India's most ambitious economic reform plans in 70 years will ultimately boost tax receipts and provide simplicity for businesses, but the true impact may not be felt for at least a decade due to implementation challenges, experts said. But some say GST might end up in a "huge mess" if concerns over the new tax regime were not resolved in time.
After several rounds of deadlock in the parliament, India is set to roll out the Goods and Services Tax on July 1, replacing a thicket of indirect central and state levies that critics argue have blunted economic competitiveness and hobbled efforts to lift more out of poverty, news outlets reported.
Observers have described the reform as the most meaningful change to India's tax regime since the country became independent in 1947.
The government will introduce GST for a variety of goods and services along four main rate bands: 5-, 12-, 18- and 28% irrespective of the location of purchase. Certain goods such as fresh meat, eggs, milk, among others, will not be taxed, according to a list compiled by the Economic Times newspaper.
Vishnu Varathan, a senior economist at Mizuho Bank, told CNBC's "The Rundown" that the full economic potential of this historical tax reform could take years to materialize as India would first need to build up its tax ecosystem.
"Long term, and we're talking more than five years, we're talking about eight to 10 years, I think it will lift growth potential, that's for sure," he said. In the near term, the reform will formalize more of India's untaxed economy, which would increase efficiency but not the size of the gross domestic product, he added.
HSBC in a report in May also predicted the GST rollout will add about 40 basis-points to India's GDP growth in the medium term, lower than their initial forecast of 80 basis points. Pranjul Bhandari, chief India economist at HSBC, explained that in HSBC's previous estimate, the growth fillip was meant to come from "having the same tax rate for each product across all states and having the same tax rate across all goods and services."

Facing Chaos
India’s plans to revolutionize its tax code risk dissolving into “chaos”, business groups and experts have warned just days before the new system comes into force.
Business owners, accountants and industry groups say there are a litany of problems with the proposed goods and services tax and aims to turn India into a single market.
The reform has been championed by Narendra Modi, prime minister, who has put it at the center of his economic reform agenda since coming to power in 2014.
Economists say it could boost output by as much as 2% a year if well handled, but some warn that flaws in the new system could kill Modi’s reputation as a modernizer with a talent for delivery.
The All India Manufacturers’ Organization has become the first big industrial group to call for the whole system to be put on ice while the problems are sorted out. The government has spent the past three months negotiating the details of the policy but key aspects are yet to be agreed.
One observer said, large companies in the organized sectors are fully behind the rollout, it's the smaller ones that do not regularly pay taxes that have to adjust.

Traders Scared, People Worried
New Delhi deputy chief minister Manish Sisodia said on Friday that GST might end up in a "huge mess" if concerns over the new tax regime were not resolved in time. "Traders are scared. People are worried," PTI quoted him as saying.
Sisodia, who also holds the finance portfolio, described the GST as a "great idea", but slammed the Center over the way it was being implemented.
Speaking at the India Today Midnight Conclave-Tryst with Tax, he said that the central government should have made better preparations for implementing the unified tax measure. "Special GST software has been tested. It is not foolproof, but they (the center) are going ahead with the launch. I do not understand the need for such a haste. The GST is a great idea, but its implementation is not," he said.

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