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GST: India will soon be on a clutter-free tax highway
August, 04th 2016

Come April, and state borders are expected to be less crowded with the state VAT department officials not stopping trucks to check if local taxes have been paid.

A study had shown that border checks result in Indian trucks driving 280 km a day , which is 35% of the 800 km that an average truck travels in the US. "Logistics costs (broadly defined, and including firms' estimates of lost sales) are higher than the wage bill or the cost of power, and three-four times the international benchmarks," a committee on GST rate headed by chief economic advisor Arvind Subramanian said quoting the report.

GST: India will soon be on a clutter-free tax highway Getting rid of this cost will be one of the many benefits that GST will bring about--to the economy , to the industry , and eventually the consumer. "India is very complex because you are dealing with 29 states, UTs like Delhi and the Centre. You are dealing with 30 or more governments on indirect taxes. It is like the EU and GST will turn it into a common market," says Harishanker Subramaniam, partner at consulting firm Ernst & Young.

But the new tax regime -modern India's biggest tax reform -comes with complexities, which companies are still grappling with. For consumers, it'll mean higher tax on services, taxed at 15% (including cess) now. The Subramanian panel had backed a levy of 17%-18%.

Overall, experts expect prices to come down in the months after GST implementation as companies pass on a part of the benefits they get in the form of credits they get for taxes paid by their suppliers (see graphic). One problem with the current system is there's no credit for tax paid in earlier stages of production, resulting in `tax on tax' and the burden being passed on to consumers. "Prices of some consumer goods and durables can fall due to reduction in the effective indirect tax. Depending on final rates, prices of services may increase marginally," said MS Mani, senior director at consulting firm Deloitte, Haskins & Sells. But few are hazarding a guess on specific products given that the GST is still work in progress.

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