India: Possible protests as tax reform comes into effect July 1

Event

The new Goods and Services Tax (GST) is in effect throughout India as of Saturday, July 1. The GST was first proposed in 2006 as a means to convert India’s large black market economy into taxable revenue. However, economists note that while necessary, the GST will initially slow down the national economy as businesses adjust to the new regulatory burden.

While the government has spent significant resources on training public- and private-sector accountants on the new regulations, there has been significant pushback from business owners. Many industries will face higher net taxes on their goods and services, likely spurring demonstrations in cities nationwide.

Context

The Indian government has made significant efforts in recent years to tax its large informal economy. In November 2016, Prime Minister Narendra Modi’s government ordered the discontinuation of large bills as a means to reduce corruption and better trace the flow of money, sending India’s domestic economy into temporary chaos. Some 86 percent of all bills in circulation were declared invalid in the November move, and the government has been looking at introducing regulations on other parts of the “black economy” including the buying and selling of gold. In response to these major changes, there have been widespread protests throughout the country in opposition to currency reform.

Advice

Individuals present in India are advised to be aware of current tensions related to this issue and to maintain a low profile. Avoid any public gatherings and protests that may arise. Additionally, individuals engaged in business in India are advised to consult a tax expert to ensure compliance with new regulations.