Danger of corruptions hovers over India’s Goods and Services Tax

India’s parliament approved a Good and Services Tax for all Indian states at four basic rates. For Finance minister, the new tax will help the economy grow by 2 per cent. Party views are only "political speculation". Without opposition, people will eventually get used to paying more."

New Delhi (AsiaNews) – India’s parliament has adopted the country’s most sweeping tax reform bill, replacing numerous federal and state taxes with a single Goods and Services Tax (GST).

Until now, states could impose their own taxes, creating a fiscal web that hampered economic activities and exports. For Finance Minister Arun Jaitley, the reform will help the economy grow by 2 per cent.

However, a source told AsiaNews that "the law can generate a new kind of corruption. In fact, auditors monitor how merchants apply the law. There is a risk that businesses and auditors will get together and the government knows this. This is why the prime minister met with thousands of state officials and asked them to be honest and not cheat people."

On the short run, the new tax could lead to an increase in prices. However, "We can expect businesses will try to avoid passing on higher taxes to avoid losing customers,” the source said. “They are more likely to work out a deal with tax auditors, who are the ones who will issue certificates of good performance".

The tax reform bill came before India’s upper house (Rajya Sabha) in August 2016. To become law, it required the approval of the lower house (Lok Sabha).

Under the new system, goods and services will be taxed under four basic rates – 5, 12, 18, and 28 per cent. This will create an Indian common market.

The law was adopted at a special midnight session of parliament, with government and opposition lawmakers at loggerheads. The former noted the historic scope of the reform, replacing a system in place since 1950; the latter highlighted the risks for ordinary people.

According to expert opinion the cost of consumer goods should rise in the short run, whilst benefits will only be felt after a lengthy adjustment.

"Statements by politicians are part of the classic party dialectic,” the source said. “It is only political speculation because no one yet knows what effects it will have."

"What is certain is that people will get used to paying more, as was the case with demonetisation”. The latter refers to the withdrawal from circulation of 500 and 1,000 rupee banknotes ordered by Prime Minister Narendra Modi last November.

The move was designed to counter counterfeiting, but ended up causing chaos for most people. People were forced to line up for hours to exchange the old notes.

For weeks, the country saw protests, including serious episodes of violence with criticism directed at the government for not considering the poor and people living in rural are, who are used to paying in cash, especially with the withdrawn denominations.

However, "The protest failed because resistance was weak. The same can happen now. There will be a lot of noise at the start, but over time it will weaken. No one will talk about it anymore, and people will just get used to paying.”

The positive effects of demonetisation are well off into the future, but its short-term effect has been much lower growth this year. similarly, experts expect the new tax will cause distress.

A complete list of taxed items has not yet been published, but according to some reports, eating out, staying at a hotel, purchasing a home and buying jewellery will become more expensive in Mumbai.

Staying in a hotel after dinner will be more expensive as well. Air-conditioned hotels will be charging 18 per cent GST and non-AC ones will charge guests 12 per cent. The tax on gold jewellery will now be 3 per cent, up from 1.2 per cent VAT.