India currently has one of the worst tax-to-GDP ratios among major economies at 16.6%
Latest news : Rakesh Sachdeva sells auto parts in a busy market in central Delhi, just a few miles from Prime Minister Narendra Modi’s office. Yet despite having a flourishing business he does not pay any tax.
Until now, his rundown premises and small scale operation has kept the business below the radar of the country’s tax officials. Come July 1, however, “the party will be over”, says the 51-year-old, with a resigned shrug.
A nationwide Goods and Services Tax (GST), set to come into effect on Saturday, has faced criticism for its complex design. But the country’s biggest tax reform since independence is promising to bring millions of firms like Sachdeva’s into the tax net, boosting government revenues and the country’s sovereign credit profile.
The new tax will require firms to upload their invoices every month to a portal that will match them with those of their suppliers or vendors.
Because a tax number is needed for a firm to claim a credit on the cost of its inputs, many companies are refusing to buy from unregistered businesses. Those who don’t sign up risk losing any customer who has.
“I have no option, but to register with the new system,” said Sachdeva, who spoke to Reuters on condition the name and precise location of his shop were not disclosed.