India’s Parliament had for years been discussing the possibility of a Goods and Services Tax (GST) when Modi in 2017 passed a bill establishing such a levy.
That move represented the prime minister keeping a promise: Modi’s Bharatiya Janata Party (BJP) said in 2014 that it would overcome the bureaucratic deadlock and finally bring “on board all state governments in adopting GST.”
In addition to drawing in more government revenues, the measure — hailed as the country’s biggest tax reform in 70 years — was also aimed at reducing illicit transactions.
Although GST had been discussed for many years, “previous governments could not muster the political courage or will to implement this vitally important but politically challenging reform,” said Prasenjit K. Basu, a Singapore-based economist and author of “Asia Reborn: A Continent Rises from the Ravages of Colonialism and War to a New Dynamism.”
Still, there have been criticisms about Modi’s rollout of the new tax. Those center on how quickly the government implemented the GST in a business marketplace that was not well prepared to accommodate the procedural changes.
For one, slow GST processes reportedly continue to hurt exporters, who are entitled to refunds. Exports in October declined 1.2 percent largely on account of the refund delays, according to an analysis posted on the website of the Reserve Bank of India.
Although the Modi-led government had trumpeted the GST as a tax regime made efficient through digital platforms, it has suffered several hiccups on that front. For example, many exporters said they were unable to file refunds for input tax credit, which reportedly resulted in their funds being blocked in the initial months.
“The GST policy was not implemented with the needed infrastructure in place. What would have taken other governments three years to gradually implement was rushed in India within months — and that, too, to a less educated population,” said Ghosh.
Smaller local businesses were most vulnerable to bearing the taxes and additional costs from consulting accounting services, Ghosh added.
If implemented well, however, the GST policy could ultimately bring benefits to the country.
The tax regime “will help to boost Indian fiscal revenues over the medium to long term, as well as helping to improve industrial competitiveness by significantly lowering logistics costs for domestic manufacturing firms,” Biswas said.