India GST reform threat
Growing political uncertainty looks set to undermine the progress of the implementation of the new Indian Goods & Services Tax to replace the antiquated VAT regime. This will undermine India’s ambitions to match China’s rise as a manufacturing superpower.
Prime Minster Modi’s BJP party has suffered a series of local election defeats which means it is unlikely to gain control Rajya Sabha parliament. The GST Bill is currently stuck there as the BJP and opposition Congress parties are failing to agree on a number of compromises that BJP included within the implementing legislation.
The BJP party came to power in 2014 promising major economic reforms, and has pushed through many changes by overriding local and party concerns. However, election setbacks are now undermining the reform mandate of the Modi government.
India falling behind China on tax reform
GST is scheduled to replace a legion of overlapping indirect taxes, including: VAT, CENVAT; Service Tax; and Professional Tax. The current regime discourages cross state trade, and is holding back ambitions for India to grow its manufacturing base to rival China. Chinese VAT reforms since 2012 have boosted plans to return excess taxes to companies, and grow the internal consumer consumption.