The Big Story: Reformation Nation

After 16 years (and seven hours of rather tepid debates in the Rajya Sabha), the Indian Parliament on Wednesday passed a Constitutional Amendment Bill that represents the first steps on the way to uniting the country under a common Goods and Services Tax.

The new arrangement folds in all previous indirect taxes, from octroi to excise duty to service tax, to create one common tax payable everywhere. The aim is to make India a common market, make it easier to conduct business, widen the tax base, reduce corruption particularly on inter-state transactions and increase transparency across the board.

To get there, the states and the Centre had to be willing to compromise on their authority, giving up individual powers of taxation and instead empowering a Goods and Services Tax Council, consisting of representatives of the Centre and the states, which will make most taxation decisions from here on. The task also involved cajoling and coercing political parties across the board to agree on a draft of the legislation that was first mooted by Atal Bihari Vajpayee in 2000 and first officially drafted in 2006, under Manmohan Singh.

Finally, India has a GST. Sort of. The Constitutional Amendment is only the first step in a complex series of steps, that will include two more pieces of Central legislation, ratification by at least 15 states, state GST Bills in all of the assembles – and that's just the legislative bit. Actual implementation will be a massive headache, with an information technology backbone and the need for GST secratariats in every state capital to help India's tax authorities change the way they work.

All that pain is also going to likely come with plenty of politicking as the GST Council tries to arrive at a GST rate that satisfies most, and inevitably the cost of taxing a wider base will push inflation up. But that is an inevitable fall out of change and reform: Inertia is a powerful force, and India has somehow managed to beat it. The process will certainly be painful, but the long-term gains of the GST are designed to outweigh short-term uncertainties. Check back in 15 years.

The Big Scroll:

  • Shoaib Daniyal doesn't want you to believe the politicians – the GST may actually end up harming India. 
  • And though it has been passed, there is a huge matter still to be resolved, as Mayank Jain points out: The GST rate itself. 
  • Earlier, Anupam Gupta explained what the implications of passing the Constitutional Amendment would be.  
  • Congress and the rest of the Rajya Sabha called on the BJP not to abuse the money bill route for GST.

GST reads

  1. "G Yes T" says the Indian Express headline, which calls it the boldest tax reform since opening up the country 25 years ago. 
  2. The entire time, Finance Minister Arun Jaitley, who has shepherded this legislation through despite some terrible floor management earlier, remained steadfast, according to Archis Mohan in the Business Standard. 
  3. Mint goes straight to the market perspective, explaining who is likely to win and lose, a piece that makes for interesting reading even if you aren't looking to trade shares post GST. 
  4. Good sense triumphs on GST, says a leader in The Hindu, pulling the words out of Congress leader P Chidambaram's mouth. 
  5. Chief Economic Adviser Arvind Subramanian wants you to go back and read his column in The Hindu, with Hasmukh Adia, explaining the need for the GST.
  6. VS Krishnan, in the Indian Express says GST is a transformational reform, but the plan still has plenty of creases that will have to be ironed out. 
  7. In Mint, Harishankar Subramaniam charts out the road ahead for industry, which will have to adjust to new tax compliance and greater transparency. 
  8. A revolutionary and long-pending reform, says Ajit Ranade in The Hindu although he is concerned about its impact on the fiscal autonomy of the states.
  9. On the Huffington Post, R Jagannathan is much more pessimistic about the short- and medium-term implications of the GST, saying the coverage has been overly rosy. He even lists out how it's going to hurt us. 
  10. And a view from abroad: How the New York Times covered India "overhauling its tangled tax system." 

Giggles

Don't Miss

The flood stories from around the country might make you feel as if the rains have come everywhere, but there are still parts of India that have remained relatively dry, writes Mridula Chari.

Take Gujarat. Five people died in flash floods in southern Gujarat on Monday. Heavy rain is expected to continue. The state, however, continues to have deficit rain. The worst affected regions of Kutch and Saurashtra continue to report scanty rainfall, as marked in yellow. While Surendranagar and Anand both received 60% less than normal rain as of August 3, Kutch has reported a 72% deviation from normal.

The drought in Gujarat has been heavily under-reported. With the state government in denial, those dependent on agriculture seem to have fallen under the radar.