A decade-and-a-half in the making, last week both houses of Parliament overwhelmingly passed a bill that amends the Indian Constitution to create a Goods and Services Tax (GST), bringing India closer than ever before to functioning as a common market.
I have a new essay in Foreign Affairs that looks at what the GST means for India–and the hard road ahead when it comes to implementation. Here’s a taste of the challenges that await:
Even assuming speedy legislative action and a reasonable compromise on the GST rate, the path ahead is riddled with landmines. Businesses will have to incur costs to adjust to the new regime, which will be especially high for smaller firms that have never paid taxes or lack the technology and expertise to adapt. The government will have to train new tax collectors and implement a massive new online tax system. In fact, leading economists suspect that there could be adverse consequences to both growth and inflation in the short term until these teething pains subside. To further muddy the waters, legal experts are already warning of future lawsuits over the constitutionality of the GST, since it alters the basic federal–state structure outlined in India’s founding document by reallocating taxation powers.
You can read the full piece here.