India launches new single nationwide tax amid confusion

NEW DELHI – Shops and businesses reopened in India amid confusion Saturday, hours after the government introduced a new nationwide tax that will change the cost of nearly everything people buy, replacing a complicated mix of state and federal taxes.

Prime Minister Narendra Modi heralded the major overhaul of the taxation system — known as the Goods and Services Tax — at a midnight ceremony Friday in Parliament.

The main opposition Congress party and some other parties boycotted the ceremony, arguing that nearly 7 million traders needed more time to prepare for the new system, which requires them to file tax returns every month. The opposition, however, supported the new tax system.

"There is confusion right now," said Manish Arora, a New Delhi pharmacy owner who was selling medicine to customers at the old prices. "My suppliers say they will be able to provide the pricing of medicines under the new system later Saturday."

Balbir Singh, who manufactures television sets, said his clients in small towns and villages didn't know much about the new system. "I expect my business to go down by 60-70 percent in the next two to three months before it picks up again," he said.

Traders shut shops and businesses as a protest in the Indian portion of Kashmir, where insurgent groups have been fighting for independence from India or the region's merger with neighboring Pakistan since 1989.

"This law aims at crushing the economic activities of Kashmir," said Mohammed Yasin Khan, a trade union leader. "We will not allow implementation of the GST in the region. Kashmir is otherwise declared a disturbed area. So, legally and logically there can't be implementation of the new system."

Modi said in his speech Friday that the new system would eliminate 500 types of taxes in favor of one tax across the country, a catalyst that would remove trade imbalance and promote exports.

"GST is a simple, transparent system that prevents generation of black money and curbs corruption," the prime minister said. "The system gives opportunity to honesty and people who do honest business."

Mitesh Prajapati, a director for Steel India Private. Ltd., said that he supported the government initiative, but that small business owners have been intimidated by the technological requirements for implementing the new system.

India's chief economic adviser, Arvind Subramanian, was confident that the teething problems would be worked out soon. "There will be some hurdles initially, but we will be able to remove them in one or two months," he told reporters.

The government published lists last month showing that almost every item for sale in India, from shampoo to tea to automobiles, should be taxed within four broad categories — at rates of 5 percent, 12 percent, 18 percent or 28 percent. It had already ordered all businesses in January to adopt or upgrade cash registers and computer systems so they are able to file tax returns that comply with the new tax regime.

Most of India's 29 states have passed local laws to implement the new tax regime, but some have pleaded for more time. The government dismissed that idea, but at least one industry group — the Associated Chambers of Commerce and Industry of India — urged a delay, saying the government's own computer networks were not yet ready for the change.

First proposed in 2003, the idea was bogged down for years in bipartisan debate, with various governments trying to push it forward while opposition politicians dragged it back. Before Modi and his Bharatya Janata Party came to power three years ago, they were staunchly against the move.

Some opposition parties asked the government to delay implementation of the new system until October because Indian businesses were still recovering from the government's snap decision to remove 86 percent of its currency from circulation overnight on Nov. 8. In the months that followed, India replaced the old currency notes with newly designed bills. But the move caused chaos within the country's cash-dependent economy, hurting industries like construction and tourism, and hitting poor people the hardest.

On Friday, at a crowded New Delhi market plastered with posters announcing massive sales, shoppers were vacuuming up household gadgets and high-end electronics in the last hours before the new sales tax took effect.

Nafees Ahmad scoured the stores for a new air conditioner and LED television set with his wife and teenage son in tow.

"Our TV is fine. We did want to buy a new one, just not this soon," he said with a smile as he checked prices at the Electronics Paradise store. "But when the GST is applied everything will cost more, so we decided to just go ahead and buy it now."

While economists mostly agree that a single, nationwide tax will streamline business, there are concerns about how an economy as unwieldy as India's will transition to a system that involves filing monthly tax returns online.

It was hard for Indian shoppers to know what the cost of almost anything will become because prices vary by brand and the current taxes varied from state to state. Refrigerators and air conditioners were among items likely to cost much more; they'll be taxed at the top rate of 28 percent while the highest tax applied in any of India's states now is 23 percent.