India’s “one nation, one tax” reform: lessons, outcomes, and implications for Brazil

In 2017, India introduced a tax reform with the slogan “One Nation, One Tax.”

This reform is a significant reference point for Brazil, given similarities such as being a developing nation and having a non-unified tax system.

Six years post-reform, India saw an increase in revenue, mainly due to their vast informal economy, and a doubling of contributing enterprises.

Yet, challenges like combating tax fraud and optimizing tax credit flow remain.

Previously, India, home to 1.4 billion people, dealt with differing tax systems across its 28 states.

Their rapid transition to the Goods and Services Tax (GST) caused initial business confusion.

The GST, which taxes purchase and sale transactions, has rates ranging from 0% to 28%, based on the type of goods.

However, fuel, electricity, and alcoholic beverages follow distinct rules.

Intricacies in taxation, such as different rates for bar soap versus liquid detergent, are issues Brazil aims to avoid.

India established a federal council with state representatives to address GST-related decisions.

A focus on technological advancement was evident when India withdrew high-denomination bills in 2016, prompting a surge in digital transactions.

However, the GST system isn’t without pitfalls.

The non-cumulative nature of the GST, where taxes paid in one production stage can be deducted in the next, exposed loopholes for fraudulent tax credit claims.

Automated data surveillance, even artificial intelligence, is being employed to counteract such issues.

Tax credits have been pivotal in formalizing small and medium businesses in India.

Melissa Guimarães Castello, a taxation expert, points out the learning curve for these businesses.

The Brazilian tax reform has predicted such challenges, allowing businesses listed under “Simples” to generate tax credits.

Experts suggest that the real benefits of such reforms might manifest over several years rather than instantly.

Following the reforms, India experienced a dip in its GDP growth, but recent years have shown economic rebound and improvement in global business rankings.

Simplified tax structures indeed have the potential for positive, long-term impacts.