India signals tax overhaul on track in July

NEW DELHI Indian officials are signalling a sweeping tax reform will go ahead as scheduled on July 1, pushing back against speculation the government will delay amid predictions of chaos from some business groups.

“The rumours about Goods and Services Tax (GST) implementation being delayed are false,” Revenue Secretary Hasmukh Adhia said in a Twitter post yesterday. “Please do not be misled.” A senior government official and a state tax department official, who both asked not to be identified discussing private matters, also said there were no plans to delay the rollout and the ministry of finance tweeted preparations were in “full swing”.

Adhia’s comments come as India prepares for its biggest tax overhaul since independence in 1947, following a decade-long effort to simplify a web of taxes, regulations and border levies into a unified GST.

The tax would be the most significant economic reform since Prime Minister Narendra Modi’s government took power in 2014. And although many analysts expect some degree of upheaval in the short term, officials have said the GST may bolster growth as much as two percentage points.

Still, three state government officials said there were teething problems at the state level getting ready for the tax, and they believed there was some chance of it being delayed. A final decision on whether to proceed was likely after the next GST council meeting on June 18, the three officials said, asking not to be identified because the discussions are private.

Separately, two federal government officials said the Finance Ministry may not be fully prepared for the rollout on July 1, while discussions about granting flexibility around tax filings for a few months were also underway. They cited internal discussions and also asked not to be identified.

Various industry groups representing India’s millions of small-and-medium sized enterprises (SMEs) are still hoping for a delay or lenience on tax compliance.

The All India Manufacturers Association (AIMO), which represents almost 100,000 SMEs, said it has sought three more months from the Finance Ministry on behalf of its members.

“It is impossible for any industry to suddenly change their tax structures and pricing modifications,” KE Raghunathan, AIMO’s president, said over phone from Chennai. “It will only subject us to chaotic situations, confusion and losses.”

The Confederation of All India Traders said the government shouldn’t penalise traders for procedural lapses for nine months after the new tax is introduced. The organisation’s secretary general, Praveen Khandelwal, said it will be difficult for small businesses to comply with GST as about 60% of 57 million small businesses are yet to adopt technology, which is a prerequisite for complying with the new tax system.

Even “the rules are not ready”, said Khandelwal. “Some issues need to be sorted out.”

There is a possibility that the government will delay the rollout, though it “seems quite firm” on its July 1 deadline at the moment, said Pratik Jain, a partner at PwC and the national leader of the firm’s indirect tax group in India. The government may push ahead with the July implementation, but relax initial filing requirements, he said.

“The question is, are the smaller businesses as ready as they could be?” he asked. “The answer is obviously no.” — Bloomberg