The adoption of the Goods and Services Tax, or GST to replace the plethora of state and local taxes with a single unified value added tax system is seen as potentially transformative for India’s economy. However, despite widespread consensus on its desirability, the GST has been stalled for years by the BJP itself while in the opposition. The implementation of the GST required the amendment of the Constitution that empowers the Central Government and also the states to collect retail sales taxes. The Constitutional amendment was finally approved in July this year.
India’s business community has been pushing for simplification of India’s taxation system for almost a decade, terming it archaic and tedious. Having different indirect taxation rates in different states makes the movement of goods across internal boundaries very cumbersome and open to corruption and nepotism. India’s business honchos believe the GST will have a positive impact on businesses. The GST is expected to improve ease of doing business, encourage more investment in manufacturing and boost GDP by as much as 1-2 per cent. Most states have also passed the GST making it easier to start implementation. What requires massive overhaul today is the Income Tax system and its outdated laws, especially in the wake of the recent demonetization process. It is well known that the Income Tax Department operates in a very hazy climate of collusion.
The banking sector too requires massive shake-up to be able to deal with the current demands for more banking branches to serve the last mile. Also banks have failed to secure their loans leading to the accumulation of non-performing assets (NPAs) amounting to thousands of crore of rupees. This chokes the banking sector even as most of the assets provided as collateral have depreciated in value over the years and cannot be easily capitalized. The flight of noted businessman Vijay Mallya by cocking a snook at the banking system reveals how weak the Indian laws are. The Modi Government which came to power on the promise of good governance needs to plug all loopholes not only to prevent hoarding of black money but also administrative corruption.