India GST: Sweeping tax reform introduced

Image source, AFP
Image caption, It is not clear whether small businesses are ready for the tax

India has replaced its numerous federal and state taxes with the Goods and Services Tax (GST), designed to unify the country into a single market.

The historic overhaul of the existing tax legislation was carried out at a special midnight session of parliament.

India says introducing GST will cut red tape and increase tax revenues, fuelling economic growth.

Finance Minister Arun Jaitley says the reform will help the economy grow by 2%.

But businesses have been asking for more time to implement changes, worried that they are not ready for the move to the new system.

Many do not even have a computer to register on the GST network.

Media caption, Explaining India's new Goods and Services Tax

"No country of comparable size and complexity has attempted a tax reform of this scale," Harishankar Subramanian, of Ernst and Young previously told the BBC.

Under the new system, goods and services will be taxed under four basic rates - 5%, 12% 18% and 28%.

Some items like vegetables and milk have been exempted from GST, but will still be subject to existing taxes.

The price of most goods and services are expected to increase in the immediate aftermath of the tax.

Analysts expect economic growth to slow down over the next few months, but say it should pick up after the tax is fully implemented.

Related Topics