After a decade of negotiation, horse trading and discussion, India's GST appears set to simplify its mind-bendingly complex system of internal tariffs and duties.
As Rahual Gautam of Sheela foam explained, in Australia every day a truck leaves Melbourne at 7pm, and arrives 800km away in Sydney at 7am the next morning. “In India, a distance of 800 km could take three or four days by road,” he said.
“The truck is trying to negotiate the infrastructure and internal state border barriers, and fees have to be paid at each checkpoint. Every city, every state has barriers, and goods stay at the borders for hours.”
Simplifying this by abolishing a number of tariffs and bundling them into one, could lead to 1-2% being added to GDP, he believes. ”My guess is that it will be bigger than that.”
Like VAT in the EU, GST is a clear, comparatively straightforward way of taxing manufactured products “It will be based on transactions,” said Sylvian Huguenard, vice president for functional materials and crop protection at BASF. “It will have five different levels, and gives industry across the country the opportunity to consolidate tax values.”
Dow’s country head for polyurethanes in India, Sudhir Shenoy, said: “Our customers are spread all over India. Today’s tax structure is very cumbersome, and taxes on finished products depend on where your plant is located. The documentation is very complex.”
Wanhua’s Wen Ping agrees. “GST is to be welcomed as it will make it easier to move materials across borders within India,” he said.
“It will also take a lot of small cash sectors and remove their advantage because won’t be able to evade taxes,” added Shenoy. “There will be no incentive to evade tax. It levels the playing field. It may lead to some degree of aggregation in industry. But genuine customers should grow. There are a lot of upsides.”
Harshad Naik, managing director Huntsman India believes it is absolutely the right thing to be done. “It simplifies the taxation system,” he said. “In addition to bringing transparency, it will also help companies to claim tax repayments which they are due under the current system, but which are impossible to claim. The government wants companies to pass the savings onto consumers. It could bring growth in the economy up by about 1%.”
