Indian Prime Minister Narendra Modi has called for the passing of an important legislation to reform the country’s tax system. India’s current tax model consists of 15 types of taxes, including an excise tax and a value added tax (VAT), which has scared off investors due to it being overly complex. The World Bank also noted that tax compliance has become harder this year compared to 2015.
Economist Morgan Stanley said the proposed national Goods and Services Tax (GST) seeks to provide an economically efficient and simple tax model to address the inadequacies of the present system. The new tax model is expected to bolster investor confidence in Asia’s third largest economy. However, the said legislation has been pending for more than a decade.
The bill was passed in the lower house last year and now needs the approval of the upper house. Should it go through, state assemblies will then vote on it and at least 50 percent approval is needed for the GST to finally be implemented
To ensure its passage, Modi’s administration has been reaching out to opposition parties for support. DBS economist Radhika Rao noted that the ruling government does not have a majority in the upper house. It will also need to get the support of state governments who have long opposed the GST since it will the cut down their share of tax revenues from 68 percent to 53 percent. “Some are on board, subject to concessions,” Rao said.
