People think the United States’ Internal Revenue Service is a pain in the neck to work with, but the maligned tax agency of the U.S. has nothing on India. Since independence, India has had a system of taxes, duties, and fees that were each carried out at all three levels of government (India is a federal system much like the United States). In addition to being a logistics migraine, this system has long been thought to encourage corrupt behaviors, with duplicitous officials of states and localities creating logjams, either for political reasons, or worse, for soliciting a bribe. Today with the passage of a Goods and Services Tax that has been in development for about the past decade, the upper house of India’s parliament hopes to ‘chop down a forest of red tape’. This law puts India under one system at the state, local, and federal level which economists think will make the rapidly growing economy that much stronger with a 1 to 2 percent increase projected from this move.
There is also another benefit to this move for government officials (that many citizens might be ignoring): this new law could potentially expedite tax collecting, which for a nation of over 1 billion people, must be a hassle. Any help would probably be considered a tremendous upgrade. This tax reform, which has a strong ally in current Prime Minister Narendra Modi, is one of the most significant reforms in Indian economics since economic liberalization efforts took hold in the 1990s. However, before celebrating the good news, there are still massive improvements yet to be made, as according to the World Bank, India still only ranks a lowly 130 in terms of burdens placed on small businesses (there being roughly 200 countries total). Hopefully Modi can push through additional infrastructure reforms before the next election for Prime Minister, and India can enjoy it’s 8% annual economic growth.
