Prime Minister Narendra Modi's crackdown on the cash economy has shattered the consensus needed for a new national sales tax, GST, plunging his boldest reform into limbo and threatening to entrench an economic slowdown.
Modi's government already had its work cut out to finalise a deal with 29 states to launch a Goods and Services Tax (GST) on April 1 that would transform Asia's third largest economy into a single market for the first time.
But his decision to scrap 86 per cent of the cash in circulation, in a bid to purge the economy of illicit "black money", has caused huge disruption.
A slump in business activity stemming from the cash crunch has caused the revenue of state governments, which collect value-added tax on goods and other duties, to slump by 25-40 per cent.
The states won't risk another setback by rushing the sales tax into force.
"The investment and economic environment in the country is in bad shape," said West Bengal Finance Minister Amit Mitra, who earlier head a panel tasked with building a consensus on the GST. "How is the country going to absorb the dual shock of GST and demonetisation?"
The GST is India's biggest tax overhaul since independence in 1947. It would replace a plethora of federal and state levies with one tax, easing compliance, broadening the revenue base and boosting productivity.
It took Modi more than two years to forge a political compromise on the tax in August. Now, demonetisation "has created a trust deficit," said Kerala Finance Minister T.M. Thomas Isaac. "After this, I am not going to sit and compromise. They don't deserve it."
COUNTING COSTS
The quibble is not just over lost revenue. Some states worry about the social and political costs of demonetisation.
Take Kerala, where credit cooperatives that farmers and retired government workers rely on cannot swap old bills or issue fresh notes. The state alleges
this has encouraged commercial banks to scout for their deposits, sparking a "run" on them.
Odhisa's chief minister has written to Modi, saying curbs imposed on primary agriculture societies were making it difficult for farmers to access crop loans and procurement payments.
With the states smarting, they have hardened their stance on how to collect the new GST, which will have federal and state elements.
Source : https://goo.gl/XKp3rW
Also Read : Tax Deductions Provisioned For Disable Persons Under Income Tax Acts
Modi's government already had its work cut out to finalise a deal with 29 states to launch a Goods and Services Tax (GST) on April 1 that would transform Asia's third largest economy into a single market for the first time.
A slump in business activity stemming from the cash crunch has caused the revenue of state governments, which collect value-added tax on goods and other duties, to slump by 25-40 per cent.
The states won't risk another setback by rushing the sales tax into force.
"The investment and economic environment in the country is in bad shape," said West Bengal Finance Minister Amit Mitra, who earlier head a panel tasked with building a consensus on the GST. "How is the country going to absorb the dual shock of GST and demonetisation?"
The GST is India's biggest tax overhaul since independence in 1947. It would replace a plethora of federal and state levies with one tax, easing compliance, broadening the revenue base and boosting productivity.
It took Modi more than two years to forge a political compromise on the tax in August. Now, demonetisation "has created a trust deficit," said Kerala Finance Minister T.M. Thomas Isaac. "After this, I am not going to sit and compromise. They don't deserve it."
COUNTING COSTS
The quibble is not just over lost revenue. Some states worry about the social and political costs of demonetisation.
Take Kerala, where credit cooperatives that farmers and retired government workers rely on cannot swap old bills or issue fresh notes. The state alleges
this has encouraged commercial banks to scout for their deposits, sparking a "run" on them.
Odhisa's chief minister has written to Modi, saying curbs imposed on primary agriculture societies were making it difficult for farmers to access crop loans and procurement payments.
With the states smarting, they have hardened their stance on how to collect the new GST, which will have federal and state elements.
Source : https://goo.gl/XKp3rW
Also Read : Tax Deductions Provisioned For Disable Persons Under Income Tax Acts
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