India eases tax burden for smaller businesses

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New Delhi (AFP)

India announced a slew of changes to its tax laws Friday in a bid to ease the burden on small and medium businesses, which have suffered the most since the introduction of a new national tax earlier this year.

The good and services tax (GST), which came into effect on July 1, was designed to replace more than a dozen state and national levies and transform India's $2 trillion economy into a single market for the first time.

First proposed in 2006, it got the backing of most economists as being long overdue and was hailed as the biggest tax reform since independence.

But despite the government's good intentions, many have slammed the authorities for creating a highly complex system that has added several layers of bureaucracy and hurt businesses.

Smaller enterprises -- which provide a third of the country's GDP -- have been particularly critical of the massive changes rippling through India's economy, fearing they will be unable to comply.

Finance Minister Arun Jaitley admitted to reporters in Delhi Friday that the tax burden on smaller companies has been low but the compliance burden has been high.

"The medium and small companies should remain in the tax net but we will relax their compliance burden," he said.

Under the changes, companies with annual revenues of less than $15 million ($230,000) will need to file taxes once a quarter instead of every month.

The government has also reduced tax rates on products such as unbranded savoury snacks, roti and unbranded ayurvedic and homeopathy medicines, to the lowest rate of five percent.

"Compliances are something that have really hit the small traders very, very hard," Anita Rastogi, partner at consulting firm PwC told AFP.

"The changes they've done were needed. But they haven't done enough."

India's economic growth slowed to a three-year low of 5.7 percent in the first quarter, putting pressure on Prime Minister Narendra Modi in the run up to national elections.

Small shops and businesses make up a sizable chunk of the voter base.