GST: A unified India for business

As both houses of Parliament convened for a joint session to launch the goods and services tax (GST), with Union finance minister Arun Jaitley’s speech reminiscent of Jawaharlal Nehru’s “India’s tryst with destiny”, India heralded the onset of what is undoubtedly the biggest tax reform in its history. Truly, this is another tryst with destiny—one of the most ambitious economic reforms in India since independence—one which has the ability to realign the entire landscape of the country.

For far too long, we have been witness to a maze of taxes and tax laws that have often even left the authorities befuddled. The dream of “One Nation, One Tax, One Market” is now finally a reality and the government deserves applause for deftly negotiating the roadblocks and pushing this through. From a business point of view, an integrated India is a huge positive for everyone involved—be it the Centre, the state governments, or businesses.

How does GST help?

By removing the tax barriers across states, GST has created a single common market across the nation. The existing interstate tax mechanism was somewhat broken—GST will ensure free flow of goods across states. The lower logistics costs due to the decline in transit time will be driven by the elimination of multiple check-points and consolidation of warehouses. This could significantly reduce delays and hold-ups, leading to a marked change in productivity in the economy.

Even more importantly, GST will play a huge role in the formalization of the economy. The unique ID-based tracking of goods by the GST Network (GSTN) throughout any product’s value chain will ensure higher compliance under GST. This will reduce the tax arbitrage enjoyed currently by unorganized players and facilitate the shift from the unorganized to the organized sector. By some estimates, in the long run GST could add 1.5-2% to the gross domestic product (GDP).

As a tax reform, GST will help significantly reduce the complexity associated with our current tax mechanism, which is plagued by a multiplicity of taxes, rendering the current system highly inefficient. This will have twofold benefits. Read more….