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GST: India’s dream of borderless trade grinds to a halt

The rollout of a nationwide goods and services tax (GST) from April 2016 was supposed to sweep away hundreds of checkposts on India’s state borders

india Updated: Sep 19, 2015 13:37 IST
GST,Arun Jaitley,PM

At the Walayar checkpoint in southern India, lines of idle trucks stretch as far as the eye can see in both directions along the tree-lined interstate highway, waiting for clearance from tax inspectors that can take days to complete.

Delays are so bad textile entrepreneur D Bala Sundaram has stopped sending his trucks to the international container terminal at nearby Cochin, instead diverting them hundreds of kilometres to a smaller regional port and onwards via Sri Lanka.

“Our containers would get stuck for four to five days,” said Sundaram, who runs a firm with an annual turnover of $150 million. “Officials at the checkpost are finicky.”

The rollout of a nationwide goods and services tax (GST) from April 2016 was supposed to sweep away hundreds of checkposts on India’s state borders, paving the way for the seamless movement of goods from the tropical south to the Himalayas in the north.

But political opposition and the dilution of some of the tax’s key tenets mean hopes are fading that the checkposts will be demolished any time soon, a major blow for PM Narendra Modi’s reform agenda - and for India’s economy.

The rollout of the long-delayed GST regularly tops the list of demands made by CEOs of Indian and foreign companies.

Finance minister Arun Jaitley calls the new sales tax a “game changer” that will subsume a slew of federal and state levies, making Asia’s third-largest economy one of the world’s largest single markets and bumping up economic growth.

The rollout, slated for next April, seems unlikely, as opposition parties prevented a vote on the GST in the last session of Parliament.

But, even when the tax is eventually implemented, concessions made to win the states’ support mean many obstructions to a customs union will stay.

For example, while the GST will be collected on goods and services in states where they are consumed, Jaitley allowed a 1% additional levy on cross-border transport of goods, to please states with large manufacturing bases.

Items such as alcohol, tobacco and petrol have been kept out of the new tax bill. States have also been given the flexibility to fix their GST rates within a band, providing arbitrage in the inter-state movement of goods.

Jaitley views the GST rollout as the biggest push in achieving Modi’s target of a better ranking on a World Bank “Doing Business” index by 2017. He and his aides argue that, over time, higher tax collections and better compliance under the GST will encourage states to start dismantling the border checkposts.

“Once you start tracking sales online, there will be less need to have checkposts,” Rashmi Verma, a senior official in the finance ministry revenue department, told Reuters. “The cost of maintaining these checkposts will far outweigh the benefits.”

First Published: Sep 18, 2015 16:19 IST