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Making India’s first federated tax effective.

Expectations are unrealistically high from the long delayed move to amend the Constitution and levy a common Goods and Service Tax (a value added tax) across the Union and all state governments. Truly, this tax can bind India far better than Bollywood or the All India Services have done thus far.

Like the proverbial blind men describing an elephant, each segment of stakeholders see only how the GST could benefit them. Consumers eagerly await lowered retail prices once the pancaked tax embedded in the value chain can be set off.

Suppliers hope that lower tax incidence will enhance their competitiveness versus imports. Studies suggest welfare gains of five percent by reduction within state transaction cost and as much as 15% for supply across state borders.

Tax payers are ecstatic at simplification — the clubbing of more than a dozen individual taxes into a single tax.

The government looks forward to additional tax revenue from better tax compliance on a tax base made larger by higher economic growth.

Governance evangelists are pleased at the potential of reducing corruption, inherent in diluting the incentive to evade tax. This will build on the existing mission to make tax regimes transparent and accountable. Indirect tax revenue grew 29% in the first quarter of this fiscal year, despite merchandise imports contracting by 14% — a tribute to efficient tax collection.

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Amit Singh

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