Indian opposition to boycott tax launch

Photo: AFP

Indian opposition vowed Friday to boycott the launch of the government's new national tax, adding to the strain ahead of the country's biggest ever fiscal reform.

Businesses are bracing for upheaval as India prepares to roll out the long-awaited goods and services tax (GST) with the aim of transforming the nation of 1.2 billion people and its $2 trillion economy into a single market.

The main opposition Congress party dismissed the tax launch event as a "publicity gimmick".

Other parties said they would join a boycott of a special sitting of the two parliament chambers - to be held by Prime Minister Narendra Modi when the tax takes effect at midnight on Friday.

There have only been three previous midnight sittings in India's history, to mark India's independence in 1947 and the 25th and 50th anniversaries.

Congress said the nationalist government was "insulting the very memory of India's freedom struggle and the sacrifices associated with it".

Rashtriya Janata Dal party spokesman Manoj Kumar Jha said the party would "boycott this mega spectacle of optical illusion."

"Though we have been in favour of GST, we believe there are pressing concerns, particularly among the small and medium level traders and manufacturing units, which remain unaddressed," he said.

The GST is to be rolled out Saturday even as businesses complain they are ill-prepared for the massive changes about to ripple through India's unwieldy economy.

The government promises the new regime will simplify trade by replacing more than a dozen levies with one tax, combat corruption and enrich state coffers by bringing the informal economy into the digital era.

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.

There are already signs the transition could be rocky.

Industries are on strike, others are facing an avalanche of paperwork, while some retailers remain unclear about what to charge.

Textile workers have been staging protests in New Delhi and other cities in the run-up to the launch.

It took more than a decade to get the GST through parliament and bickering over the particulars now means there are four tax rates - 5, 12, 18 and 28 percent - instead of one as originally envisioned.

So-called "sin" goods like tobacco will be slapped with extra levies, while states will still be allowed to separately tax some products including alcohol, petrol and aviation fuel.

The sweeping reforms comes less than a year after Prime Minister Narendra Modi withdrew India's largest banknotes in a sudden move designed to outmanoeuvre tax cheats. The action was blamed for a crippling cash shortage and slowing growth.