New tax and bankruptcy laws will simplify doing business in India—including for Australian exporters and investors.
India is set to introduce a common goods and service tax (GST), a necessary first step in transforming its 29 states and 1.3b people into an efficient single market. India’s current tax system varies by state and is convoluted, often forcing companies to set up distribution networks in different states to comply with the various tax codes. And goods and service taxes within states often vary—for example, the tax rate on cars often varies with its length, engine size and ground clearance.
In addition to revitalising industry, the new laws should widen the tax base by making tax avoidance harder. The current complexity makes paying tax and detecting tax avoidance difficult. As a result, there are estimates the nationwide GST could add up to two percentage points to growth. Not surprisingly India ranks poorly on the World Bank’s gauge of ease of paying taxes.
The government is aiming to implement the new laws by April 2017. The constitution will need to be amended and that will need the backing of at least 15 states.
The Modi government has also passed new bankruptcy laws, which should reduce the time taken to wind up insolvent companies and recover assets from a defaulter. India currently scores poorly on the World Bank’s measure of winding up insolvent companies, but such reforms will stand it in good stead to reach its goal of making it into the top 50 business-friendly countries.