THE TARIFF FACTOR
While the changes are aimed at helping to simplify a system deemed too complicated, economists say it is also partly due to recently imposed United States tariffs totalling 50 per cent.
“To some extent, to offset those pains, there are now domestic reforms that are being taken by the government of India to ensure that at least consumption is not being hit dramatically,” said Madhavi Arora, chief economist at financial services provider Emkay Global.
“And the production that is essentially probably aimed at an export-led model could actually get rerouted to domestic demand.”
But the GST overhaul could mean lower revenue collections for the central and state governments.
Arora has estimated this could be as much as 0.4 per cent of India’s gross domestic product. She told CNA she expects this could be outweighed eventually by higher spending, benefitting sectors ranging from consumer goods to automobile manufacturing.
Some opposition-led states have strongly opposed the GST changes, citing fears of lost revenue. They are demanding either compensation or greater flexibility to raise their own taxes.
Business owners are also watching closely.
The mobile phone industry, for example, is lobbying for phones to be classified as “essential items” to come under the 5 per cent GST rate.
Mihir Prajapati, who runs a mobile phone shop, said the current 18 per cent tax is too high.
“If the GST rate comes down, then we can also plan to open another shop and expand our business,” said the owner of Maitri Mobile.
“The overall mobile industry would grow and we would also grow.”
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