India's second tryst with destiny starts from the midnight of June 30th when Asia's third largest economy rolls out her most ambitious tax reform. Prime Minister Narendra Modi and Finance Minister Arun Jaitley have collectively staked the reputation of the world's fastest growing major economy as a haven for reform when they unveil the Goods and Services Tax (GST) regime from Saturday, July 1st.
What prompts this economy measured at $2.4 trillion and growing at 7 per cent a year to revamp its British-era tax structure? Why would 1.25 billion people suddenly decide they need a new tax code? Why would 28 different state governments, some of them diametrically opposed to the Bharatiya Janata Party at the Centre, agree to be a part of a symphony that plays a common tune?
Some of these questions are complex and may take many months to answer but the road map for this pioneering tax rejig points to forging an economic union, a single national tax market, common tax laws and a common tax base for the country.
A population exceeding the combined citizenry of the United States, the European Union, Japan, Russia and Brazil will ring in the new tax structure from the Central Hall of Parliament on the stroke of midnight on June 30th.
There is no other comparable project this size anywhere in the world. A population exceeding the combined citizenry of the United States, the European Union, Japan, Russia and Brazil will ring in the new tax structure from the Central Hall of Parliament on the stroke of midnight on June 30th.
As the world sleeps, India will walk into to a new dawn. This event will be addressed by Prime Minister Modi and overseen by President Pranab Mukherjee, who steered the GST Bill as the finance minister during the previous UPA government.
India is young. Her 70-odd years as an independent nation has seen a potentially great economy being held back by a multitude of taxes and dozens of hierarchies, often pulling in different directions. But it has taken this economy, liberalised in 1991, a little over a quarter of a century to become the world's 3rd largest on purchasing power parity. Today's industrialist counts global companies as his rivals apart from homegrown peers. And there is a new breed of Indian entrepreneurs raring to take on the world on their terms. They need enabling tax laws that help take on global corporations on their turf.
Hopefully, the GST, even with all its so-called ills, will deliver a world class regime that will catalyse fresh growth in India against a slowing global economic order.
Collection and payment of taxes will be at a single point, therefore, easier.
To begin with, this fully online indirect tax replaces 12 central and state level taxes. This single, common tax will help the economic supply chain breathe easy. This chain will be fattened up and yet be flexible as taxes paid on input costs and raw materials will be claimed back. This will lead to lower costs and, consequently, better prices for the end consumer. Goods will move faster now as trucks will not be stopped at any entry points of states. Collection and payment of taxes will be at a single point, therefore, easier. Large, if not all, parts of the informal economy will move into the formal order. And finally, India's tax regime will be comparable to those in advanced economies.
Sure, there are quibbles. But there always have been naysayers who want to remain outside the ambit of the formal tax structure.
"There are too many returns to file and everything is computerised!", some moan.
`We are not ready,' say lakhs of traders, small businessmen, companies and even large corporations. `Delay it by another quarter,' they shout from industry pulpits. "There are too many returns to file and everything is computerised!", some moan. The last ones are particularly hilarious because you would think honest tax payers would welcome online payment of tax minus the hassles!
There will be nitpickers who will find fault at everything that any government does to improve the overall life of citizens. We must ignore such voices that clamour for the old order to continue. The next two quarters will be defining moments of India's upward trajectory as a world economic power. Sure, growth may slowdown further. Companies might take a while longer to adjust to online filing of returns. Lofty stock prices may take a small tumble. And the economy may wobble just a bit more. These things happen in the life of a young nation.
Use this opportunity to ride on to the finest economy the world has at this moment. You should be buying any dips in the market. This gravy train will get thicker and fatter as time passes.
No one has won betting against the Indian economy in the longer run. No one.