ADB President Nakao warns of multiplicity of tax rates in GST

The Dollar Business Bureau

Terming the rollout of GST as an important achievement, Asian Development Bank President, Takehiko Nakao, who was on a 3-day visit to India termed the roll-out of the GST as an important achievement for this government. But added that this achievement is not without its flaws.

He was appreciative of the government’s determination to push forward with reforms, but wanted the government to put more energy into ‘labour’, ‘land acquisition laws’ and FDI so that Indian economy can grow faster than that of China’s. 

Speaking to the media about his views on the rollout of the GST he said, ‘it is difficult to gauge the impact of GST on the economy until it is implemented but the best thing about it is that it would integrate the Indian economy into a single market.’ 

Linking the GST challenges to the experiences in Japan when a new tax was introduced he said, “There are many different views about GST because of so many tax rates, for instance. So its application is a very important challenge. From my experiences in Japan, when we introduce a new tax, especially such an advanced instrument of taxation like GST, sometimes businesses have to think about pricing based on the new tax burden.” 

But then every new tax is appreciated if its pricing strategy is effective. It would be a critical challenge for businesses to maximise their profits in the GST era he cautioned.

“Some businesses can enjoy a reduction of tax burden from the previous multiple taxes to the GST, but there are also services or other businesses which would have a more tax burden. So how businesses can adjust to the new tax arrangement by pricing is one big issue. If they cannot shift the tax burden properly, they must reduce their profit,” he explained. 

Referring to the multiplicity of rates he said this would be a challenge for the taxmen as well as the businesses.

There are taxes for input credits and output, but with the varied number of tax rates, the challenge would be to know how to apply different rates to different commodities and services, which could be gargantuan in proportions. 

He also pointed out the clear transition between the Centre and the States in the dual tax structure wherein enforcement could turn out to be problematic as both the Centre and the States would be levying taxes. 

Committing to raise the bank’s financing to India’s projects to a range of $3-$4 bn each year beginning from 2018 till 2022, he said the Indian government should take advantage of the young working population by inviting more investment from within and from the outside countries.