India’s tax system has just been granted its biggest ever reform. 

In a bid to encourage businesses, Prime Minister Narendra Modi’s government has now passed the bill to introduce ‘single tax’ in India, which means easy and cost-efficient trade across Indian states. The tax reform brings together 1.25 million Indian consumers into a single market for the first time.

What is the tax reform all about?

  • Explained in simple language, the Indian government has now introduced a new approach to collecting taxes.
  • Known as the goods and services bill, it will become functional by April 2017.
  • Before, businessmen across different states of India were obliged to pay double tax.
  • Central Sales Tax was collected by the central government for selling goods and services across India, while each Indian state also imposed their own taxes.
  • Now, the reform proposes only a single, blanket tax for businesses across India.
  • This is a huge boost for entrepreneurs and trade, especially e-commerce companies like Flipkart and Snapdeal.
  • It represents a big political victory for the Modi government, which has finally delivered on its pro-business promise.

What this means for the common man in India

  • Goods such as electronics and motorbikes to become cheaper
  • Prices for privileges like tobacco, carbonated drinks, and eating in restaurants could increase
  • Business and tradesmen will find it tougher to evade tax

Analyst Amit Srivastava from India Resource Centre, hails this single tax as a relief from the earlier complicated system. He explains, “You know when you go out to eat in a restaurant in India, you get all these different surcharges at the bottom of your bill. That will all become one tax now.”

Why this is PM Modi’s biggest achievement

  • By introducing this groundbreaking regulation, Narendra Modi is set to lead one of the most courageous transformations ever to happen in the Indian economy.
  • According to New York-based economic expert Surjit Bhalla, this move establishes Modi‘s position as an economic leader, “It’s a mega-reform, and it comes under his leadership, which is why he and the B.J.P. were very keen to get it passed,” he said.

Here’s what the public opinion in India reflects:

However, introducing the new tax reform is only the beginning. Actually implementing these changes will be quite challenging, and it remains to be seen how this will impact the Indian economy.

All said and done, this is definitely one of the most important reforms for the Indian economy ever.

Image credit: Narendra Modi/flickr