GST 2.0 has potential to trigger a virtuous cycle

India’s quest for tax simplification has been an abiding one. For long, the average person regarded India’s taxation structure as draconian, with suboptimal outcomes both in revenues and compliance. Direct taxes saw substantial progress, culminating in the New Income Tax Code that simplified procedures and eased compliance. On indirect taxes, the story was more difficult. Excise remained complex and opaque, with multiple rates compounded by India’s federal structure. The idea of a Goods and Services Tax was first conceived in 1985 by V P Singh, then Finance Minister. MODVAT (Modified Value Added Tax) was introduced in 1986, but the reform remained unfinished. The 1991 balance of payments crisis revived the debate, as conditionalities under the World Bank’s structural adjustment loan and the IMF’s credit arrangement committed India to a broad-based value-added tax. Yet the reforms were partial, and progress remained slow.... Read More