Photographer: Dhiraj Singh/Bloomberg

India Signals Tax Overhaul on Track as Timing Questioned

  • Comments come less than three weeks before tax implementation
  • Introduction of GST would be biggest tax reform since 1947

Indian officials are signaling a sweeping tax reform will go ahead as scheduled on July 1, pushing back against speculation the government will delay amid predictions of chaos from some business groups.

“The rumors about GST implementation being delayed are false,” Revenue Secretary Hasmukh Adhia said in a Twitter post on Tuesday. “Please do not be misled.” A senior government official and a state tax department official, who both asked not to be identified discussing private matters, also said there were no plans to delay the rollout and the ministry of finance tweeted preparations were in “full swing.”

Adhia’s comments come as India prepares for its biggest tax overhaul since independence in 1947, following a decade-long effort to simplify a web of taxes, regulations and border levies into a unified GST. 

The tax would be the most significant economic reform since Prime Minister Narendra Modi’s government took power in 2014. And although many analysts expect some degree of upheaval in the short-term, officials have said GST may bolster growth as much as 2 percentage points.

To read more on the expected impact of GST, Click here

Still, three state government officials said there were teething problems at the state level getting ready for the tax, and they believed there was some chance of it being delayed. A final decision on whether to proceed was likely after the next GST council meeting on June 18, the three officials said, asking not to be identified because the discussions are private.

Separately, two federal government officials said the finance ministry may not be fully prepared for the rollout on July 1 while discussions about granting flexibility around tax filings for a few months were also underway. They cited internal discussions and also asked not to be identified.

Chaos, Confusion

Various industry groups representing India’s millions of small-and-medium sized businesses are still hoping for a delay or lenience on tax compliance.

The All India Manufacturers Association, which represents almost 100,000 small- and medium-sized businesses, said it has sought three more months from the finance ministry on behalf of its members.

“It is impossible for any industry to suddenly change their tax structures and pricing modifications,” KE Raghunathan, AIMO’S president, said over phone from Chennai. “It will only subject us to chaotic situations, confusion and losses.”

The Confederation of All India Traders said the government shouldn’t penalize traders for procedural lapses for nine months after the new tax is introduced. The organization’s secretary general, Praveen Khandelwal, said it will be difficult for small businesses to comply with GST as about 60 percent of 57 million small businesses are yet to adopt technology which is a prerequisite for complying with the new tax system.

Even "the rules are not ready,” said Khandelwal. "Some issues need to be sorted out."

Delays

There is a possibility that the government will delay the rollout, though it “seems quite firm” on its July 1 deadline at the moment, said Pratik Jain, a partner at PwC and the national leader of the firm’s indirect tax group in India. The government may push ahead with the July implementation, but relax initial filing requirements, he said.

“The question is, are the smaller businesses as ready as they could be?” he asked. “The answer is obviously no.”

Indian television channel ET Now tweeted June 8 that the government may treat the timeframe between July 1 to March as a “transition period,” citing government sources, while the state of West Bengal has called for a delay to ensure everyone is prepared.

‘Forced’ into Tax Net

Politically, it makes the most sense for Modi and the Bharatiya Janata Party to implement the GST as soon as possible, said Reshmi Khurana, head of South Asia for Kroll, a risk consultancy. 

The implementation in India of such a large reform will result in short-term pain regardless of any delay or minor tinkering, Khurana said, and it makes sense for the government to deal with complications long before India’s next general election in 2019.

"There will be a lot of chaos," Khurana said, adding that she doubted it would tarnish the BJP’s reputation. "I don’t think India will ever be ready until this is actually pushed out and people are forced to come into the tax net."

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