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Andy Mukherjee

At 5 Years, India’s Historic Tax Reform Is Out of Fuel

A uniform levy on goods and services replaced a dizzyingly complex system. But the compromises required to make it happen have their own pitfalls.

Inflation is hitting consumers hard.

Inflation is hitting consumers hard.

Photographer: Chandan Khanna/AFP/Getty Images

Five years ago, India’s federal and state governments struck a historic deal. From July 1, 2017, a uniform tax on goods and services — marketed by Prime Minister Narendra Modi as “One Nation, One Tax, One Market” — replaced a bewildering array of local sales and entry levies. But the many compromises that were struck to bring more than 1 billion people living in 29 states on board are impairing the groundbreaking reform.

At first glance, nothing seems terribly out of place. After years of pulling in 1 trillion rupees ($13 billion) a month or less, GST collections nowadays are consistently 50% higher. The technology has stabilized. Uniform taxation across the country has gone a long way toward making India a common market; logistics and e-commerce have benefited; apart from checking evasion, real-time data on supply chains promises to help small firms access cheap financing. Yet, for all its apparent success, the GST is out of fuel — or more accurately, fuels are out of its purview. As a result, high indirect taxes continue to overburden consumers and producers and hurt competitiveness. States’ support will be required for fresh reform, but subnational governments controlled by opposition parties fear that New Delhi will shortchange them.