Operational hiccups expected during implementation.
A remarkable Goods and Services Tax Network (GSTN) will capture 3.5 billion transactions in a month, generate 3 billion invoices monthly and bring more of the unregulated economy into the organized sector thus widening the tax base, says a leading business consultant based in Singapore.
Indian logistics cost, one of the highest in the world will come down substantially due to freer movement of goods, according to Girija Pande, Chairman of Apex Avalon Consulting Pte Ltd in Singapore.
HSBC estimates the reform could add 0.4% to economic growth. Other optimistically place additional boost to Gross Domestic Product (GDP) at 1% to 1.5%.
But many operational hiccups are to be expected given the sheer scale of this project, said Pande in an interview with CNBC.
Moreover, late roll out of outreach pogramme and training to tax payers as well as existence of millions of small and medium units, many of whom were under reporting sales, are unprepared for introduction of GST.
This will add to the challenges of implementing the state of art digitised tax platform, he pointed out.
The official GST rate schedule runs into 213 pages.
Recognising this, the Government has relaxed some of its stringent reporting requirements for the first two months.
Moreover, a spate of litigation is likely to ensue initially as rates and classifications are challenged, be believes.
Organised Indian industry has by and large has accepted the plan which required major constitutional changes across the country as they see it as “short term pain for long term gain”.
However, it spells difficulties for millions of small firms hesitating to shift into the formal economy, according to Pande, who is also advisor to Foreign Investors on India.
The government estimates smaller companies account for 45 per cent of manufacturing and employ more than 117 million people.
GST introduction in a noisy democracy like India has taken a decade to decide and witnessed much opposition due to the complexities in taxing powers under the Constitution between Federal/Central and State Governments.
GST introduction is only part of India’s long-term reform process.
The Bharatiya Janata Party (BJP) led Government, which has two more years to go before its term expires, has planned a few more major economic reforms in the Corporate Sector, post GST introduction.
These relate to urgently fixing the broken state owned banks, reeling under bad debts, and a slow start to privatising key state run companies like Air India which was given in-principle approval this week.
Many legal hurdles have been removed to selling poorly performing industrial assets and recently enacted bankruptcy code could have far reaching beneficial impact on the health of the Corporate Sector, said Pande. fii-news.com
