This newspaper reported on Thursday that Bharatiya Janata Party (BJP)-controlled states are labelling a goods and services tax (GST) reform “anti-poor”. The BJP’s foot-dragging needlessly places politicking above the final push to create a national Indian market.
A GST system will finally allow Indian markets to be unified under a uniform tax code across states and under the jurisdiction of the Centre. But now, those hopes could be dashed.
The National Democratic Alliance initially cobbled together a seemingly impossible coalition, eventually bringing all states behind a value-added tax (VAT). And now, it is reversing the hard work of BJP leader Yashwant Sinha and West Bengal finance minister Asim Dasgupta, who chaired the committee of finance ministers that floated the road map for GST in 2007.
Instead, it is all but certain that GST, India’s most important tax legislation since liberalization, will now be blocked from being implemented by the 1 April 2010 deadline set by Dasgupta’s committee.
A GST system is imperative for Indian business. As is, firms are subject to impenetrable tax codes, across multiple states; instead of pursuing business where the action is, Indian industry has its hands tied by the whims of tax?codes. Instead, advocates of GST propose a dual system: a Central-level tax and a uniform state tax throughout India.
The present tax regime also often results in double taxation: For example, excise is often paid at the point of production and a VAT is then paid at the point of sale. GST would simplify this and procure tax only at the point of sale, facilitating a national market.
BJP leaders from Madhya Pradesh, Chhattisgarh and Karnataka worry GST could erode their revenue base or prevent them from controlling taxes to pander to key political constituents. This is simply a shame. Their resistance—to keep their political bases covered—comes at the expense of markets, which can, among other things, lift India’s most impoverished out of destitution.
The importance of GST for Indian industry—and the economy—cannot be emphasized enough. This tax reform must withstand states’ political jockeying.
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