India’s goods and services tax, scheduled to be implemented on July 1, will help create one of the world’s largest single markets for goods and services and effectively implement Prime Minister Narendra Modi’s A commitment to improving the ease of doing business in India.

1. Will this really happen?

India’s Goods and Services Tax has been in the works for a long time (it was first proposed in 2006), but in April 2017, the President of India signed some related bills, clearing the final steps for the implementation of the tax. Procedural barriers.

The final related work will include: finalizing the specific tax rates applicable to different categories of goods and services, implementing technical support (known as the GST Network), and training about 58,000 tax officials. Some companies want more time to prepare for the new tax regime, but the Indian government is sticking to its set timeline.

2. What are the advantages of this new tax?

Seventeen or more state and federal taxes currently apply to goods and services as diverse as electricity and Gucci handbags. Their presence complicates efforts to sell to India's 1.3 billion people, about four times the population of the United States. Under the current tax system, a product is taxed multiple times at different rates.

For example, in front of the New Delhi checkpoint, more than 20,000 truck drivers queue up to 3 kilometers every day waiting to pay the city entry fee. In the meantime, food may be rotting on the trucks, people may be getting angry, and costs may be rising. Another change brought about by the GST is that this tax is levied at the final consumption stage rather than at the place of production. This will reduce the cascading effect of taxes, making it easier for producers to claim tax refunds and minimizing opportunities for corruption.

3. What are the classifications and tax rate levels of taxable goods?

The goods and services tax will cover 4 basic tax rates: 5%, 12%, 18% and 28%. While Indian officials have yet to reveal final details on the specific classification of taxable goods, Finance Minister Arun Jaitley has said that 50% of the goods in the basket of goods used to measure inflation will not be taxed. This ensures that consumers are not affected by price increases of basic commodities such as food. In addition to the 4 basic tax rates, tobacco products (65%) and luxury goods will face higher applicable tax rates.

4. Are there any disadvantages in dividing so many tax rates?

Most countries implement a single tax rate that applies to almost all goods. Critics say the complex GST system will increase the chances of businesses and consumers trying to game it and increase the workload of tax authorities.

5. Will this tax have an impact on the Indian economy?

Economists at Citigroup say countries such as Canada, Australia and New Zealand all experienced a one-time jump in inflation after implementing the goods and services tax, but prices quickly returned to normal. change. Finance Minister Jaitley believes that the Goods and Services Tax can increase the overall growth rate of the Indian economy by 2 percentage points.

The higher tax compliance and efficiency brought about by this tax reform are likely to increase government revenue, which in turn will help reduce the budget deficit (India has the highest budget deficit in Asia) and provide funds for school and road construction Free up funds. At the same time, by streamlining the process of buying and selling goods, the Indian government concluded that Modi’s “Make in India” initiative would benefit from it.

6. How will the company itself be affected?

Companies must significantly adjust their accounting systems, which may involve one-time investment costs. As the movement of goods in India becomes easier, logistics companies will benefit. Other winners and losers will depend on which tax rate the goods are judged to be subject to and the exemptions included in the final regulatory provisions.

7. Do many other countries use this tax?

India will follow Poland, Canada and Japan and join the ranks of the 160 countries and regions that implement value-added tax. Measured by the highest tax rate, India’s GST level will be among the highest. Given the complexity of tax reform in India, which has 29 states, 22 official languages ??and 9 million businesses, any tax reform by U.S. President Donald Trump would appear to be easy.