The Indian government on Saturday launched its biggest fiscal reform ever, promising a stronger economy and less corruption, but many businesses said they were confounded by the new single nationwide tax.
Prime Minister Narendra Modi held a special midnight session of parliament to launch the new goods and services tax (GST) which he called “good and simple”.
The government says the GST will replace up to 500 different taxes imposed nationally and by the country’s 29 states.
“GST is a simple, transparent system which prevents generation of black money and curbs corruption,” said Modi who jolted the country last year by withdrawing more than 85 percent of India’s bank notes from circulation in a clampdown on under-the-table dealings.
“The system gives opportunity to honesty and people who do honest business.”
But the prime minister acknowledged that it would cause problems at the start the GST has sparked protests by some traders while the main opposition Congress Party boycotted the launch of the tax.
“Even if you have a trusted doctor who does numbers for your glasses, you always need a couple of days to get used to a new set of spectacles,” Modi said.
Businesses are nervous about the imposition of GST, which the aims to transform the nation of 1.2 billion people and its $2 trillion economy into a single market.
Textile traders and other sectors went on strike ahead of the launch and many businesses say they are unclear about what to charge.
Most economists agree the reform first proposed in 2006 is long overdue, but warn the initial shock to the economy is likely to drag, rather than stoke, growth in the short term as businesses adjust.