India pitches GST to make a strong case for the jump in World Bank’s Doing Business rankings

India pitches GST to make a strong case for the jump in World Bank’s Doing Business rankings

The government is pitching the new indirect tax system—Goods and Services Tax (GST)—as one of the vehicles for raising India’s rank in the World Bank’s Doing Business Report, 2019, which is expected to be released by the end of the year.

India leapfrogged into the 100th rank in the World Bank’s Ease of Doing Business rankings for 2016, jumping 30 notches from a year ago, in an endorsement of the string of reforms implemented by the Narendra Modi government.

With the Modi government inching closer to the 2019 Lok Sabha election, all eyes will be on this annual report, which ranks countries on business-friendliness, procedural ease, regulatory architecture and absence of bureaucratic red tape.

India had set a target of leapfrogging to a rank of 90 in 2019 (for the year 2017-18) and 30 in the Doing Business survey by 2030.

GST: World Bank’s Doing Business rankings
A higher rank indicates that India has improved its business regulations in absolute terms—signaling that the country is continuing its steady shift towards best practices in business rules and regulation. A lower rank typically implies that there is a gap between policies and their implementation.

While the report is generally released in October in a typical year, April is a crucial month when contributors (who conduct these surveys) begin their survey for the making of the World Bank’s Doing Business report.

India’s rank in ‘paying taxes’, was 119 last year, a substantial improvement from 172nd rank a year ago. The government expects rankings to jump further this year after factoring in the benefits that poured in with GST, which kicked in from July 1, 2017.

GST, billed as India’s most ambitious reforms move, has consolidated a patchwork of 17 local and central duties into a single levy, stitching together a common national market, and enabling way for a more robust economy.

The rollout of GST was accompanied by teething troubles, pertaining to cumbersome processes and technical glitches in the first few months. The GST Council—a body for making recommendations to the Centre and states on issues related to GST—has ironed out a variety of challenges in the last 10 months.

While moving closer to June 1, 2018, which is the cutoff date for factoring in reforms and policy changes for this year’s rankings, the Council has also finalised the new return filing format that would ease procedures and improve compliance among taxpayers.

The report, which was first launched in 2003, will consider reforms and policy changes taking place during June 2017-2018.

The World Bank every year publishes its Doing Business report that ranks 190 countries on how easy it is for companies in terms of doing business, as well as following certain regulations based on ten parameters such as starting a business, getting electricity, dealing with construction permits, getting credit, paying taxes, protecting minority investors, resolving insolvency and more.

According to the Department of Industrial Policy and Promotion (DIPP), the nodal government section responsible for handling the survey, has pointed out the significant impact of GST that is relevant to the World Bank’s case study.

In a report, DIPP has pointed out that reduction in number of tax payments made has come down to one instead of four after the implementation of the new indirect tax system.

Online payments of Central Value Added Tax (CENVAT), Central Sales Tax, Service Tax and VAT has been subsumed into one payment, DIPP explained.

“Accordingly, the number of payments made for indirect taxes applicable on the company, shall go down by 3,” it said in a report.

Similarly, as per the World Banks’s report published last year, any tax paid by a company (and a cost to company) is considered in effective tax rate computed as a percentage of commercial profits.

With the rollout of GST, total effective tax rate computed as a percentage of profits will reduce, it said.

“Taxes such as central sales tax and sales tax (VAT) have been subsumed in GST which is fully creditable and thus is not borne by the company. Therefore, total effective tax rate computed as a percentage of profits shall reduce,” DIPP said.

Source: Money Control

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