Executive Briefings

Bribes, Borders and Middlemen: Why India's New Tax Reform Is a Game Changer

Seized vehicles. Bribes. Dayslong delays. Moving goods across Indian states isn't exactly easy and that's a major barrier to economic growth.

Rolling a truck of vegetables into Gujarat, the state once governed by Prime Minister Narendra Modi, requires a bribe of 500 rupees to 2,000 rupees even with your papers in order, according to Rakesh Kaul, vice-president of Caravan Roadways Ltd., which has about 400 trucks plying India's pot-holed roads.

But getting past the state tax collectors into Uttar Pradesh, India's most populous state, will cost you more: Upwards of 20,000 rupees, Kaul says. The penalty for not paying off the right people is steep fines from factories whose raw materials are stuck at state borders sometimes for as long as five days.

That's why he and other companies are cheering the July 1 implementation of India's biggest tax reform since independence in 1947. The move will replace more than a dozen levies with a new goods and services tax. That should help reduce the immense power India's myriad middlemen wield at state borders, free up internal trade, make it easier to do business and widen the country's tiny tax base.

"Even if your documents are correct, they will find some small error and hold your vehicle," Kaul says in his New Delhi office, located in a dusty trucking depot where hundreds of drivers sit near their brightly painted trucks in the 42-degree Celsius (108 degrees Fahrenheit) heat. "Once GST is there, all that is gone."

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Rolling a truck of vegetables into Gujarat, the state once governed by Prime Minister Narendra Modi, requires a bribe of 500 rupees to 2,000 rupees even with your papers in order, according to Rakesh Kaul, vice-president of Caravan Roadways Ltd., which has about 400 trucks plying India's pot-holed roads.

But getting past the state tax collectors into Uttar Pradesh, India's most populous state, will cost you more: Upwards of 20,000 rupees, Kaul says. The penalty for not paying off the right people is steep fines from factories whose raw materials are stuck at state borders sometimes for as long as five days.

That's why he and other companies are cheering the July 1 implementation of India's biggest tax reform since independence in 1947. The move will replace more than a dozen levies with a new goods and services tax. That should help reduce the immense power India's myriad middlemen wield at state borders, free up internal trade, make it easier to do business and widen the country's tiny tax base.

"Even if your documents are correct, they will find some small error and hold your vehicle," Kaul says in his New Delhi office, located in a dusty trucking depot where hundreds of drivers sit near their brightly painted trucks in the 42-degree Celsius (108 degrees Fahrenheit) heat. "Once GST is there, all that is gone."

Read Full Article