Region/Countries: Asia, India Industry: Multiple Sectors Date: May 2017

Why this is important to Wisconsin businesses: The new policy, which takes effect July 1, will eliminate taxation differences among India's states.

India’s goods and services tax (GST), which is being implemented starting July 1, 2017, will bring India under a single tax regime. The GST is governed by a GST Council whose chairman is Union Finance Minister Arun Jaitley. The GST will subsume all major levies including excise, service tax and VAT, unifying 16 different taxes. It aims to unite the country into a single market by removing state-to-state tax discrepancies.

The GST Council has approved over 1,200 goods and 500 services in the tax brackets of 5, 12, 18 and 28 percent based upon Harmonized System of Nomenclature (HSN) code. Of all the items, 7 percent fall under the exempt list, while 14 percent have been placed in the lowest tax bracket of 5 percent. Another 17 percent of items are in 12 percent tax bracket, 43 percent in 18 percent tax bracket, and only 19 percent fall into the top tax bracket of 28 percent. This means 81 percent of the items will be taxed at a percentage of 18 or less under the new GST framework.

Items such as cars, carbonated drinks, air conditioning units and refrigerators will fall into the 28 percent tax bracket, whereas milk, curd, cereals and food grains are exempted from the GST altogether. Daily use items like tea, coffee and sugar, as well as lifesaving drugs and coal, will fall in the 5 percent bracket; other daily use items like soaps, hair oil and toothpastes will fall in the 18 percent bracket, down from 22-24 percent under the prior regime.

The GST has been passed by the central government and about 24 state governments in India so far. The remaining state governments are expected to pass the law in a month's time. According to a Standard Chartered bank report, Indian states may gain $5 billion to $7 billion in revenue from the GST implementation.

According to industry experts, GST implementation will improve the ease of doing business in the country, reduce the logistics cost in transportation of goods, and level the playing field for the various Indian states’ attempts to attract manufacturers, as well as helping the economy pick up its pace and bringing down inflation. The change is also expected to simplify the paperwork required of businesses, automate processes and streamline the effort involved in tax collection, and curb corruption.

The new GST framework will make the informal economy less competitive, thus encouraging these actors to formalize their businesses and join the mainstream. The sectors expected to benefit the most from the new policy include capital goods, dairy, fast-moving consumer goods, logistics, warehousing and power. The change is also expected to benefit the cement and steel sectors and ancillary industries, and to create both skilled and unskilled jobs.