India launches its biggest tax reform in history

India has launched the country’s biggest tax reform in history, replacing numerous federal and state taxes with the Goods and Services Tax (GST).

The tax reform, which was first proposed a decade ago, was formally introduced during a special midnight session of parliament.

Prime Minister Narendra Modi said in a speech to business leaders and central bank officials that “GST marks the economic integration of India”

“There are 500 taxes and we are getting rid of it. From Ganganagar to Itanagar and Leh to Lakshadweep, it is one nation, one tax.”

The overhaul of the existing tax legislation and introduction of GST has been designed to cut red tape and boost tax revenues, which should help boost long-term economic growth.

Under the reform goods are services are taxed under four basic rates – 5%, 12%, 18%, and 28%.

Finance Minister Arun Jaitley expects the reform to help the economy grow by 2%.

However, analysts expect economic growth to initially slow down because of the short-term chaos, but then pick up once the tax is fully implemented.

President Pranab Mukherjeeh acknowledged that there will be teething troubles and difficulties:

“GST is a disruptive change, no doubt,” he said.

“When a change of the magnitude is undertaken, however positive it may be, there are bound to be some teething troubles and difficulties in the initial stage.”

Eurasia Group analysts Shailesh Kumar and Sasha Riser-Kositsky, were quoted by Bloomberg as saying:

“The GST is considered the most important milestone for the Modi government.

“It signals to investors the government’s ability to deliver on its reform agenda. Once the GST is fully operational, it will be groundbreaking and significantly change India’s business environment.”