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Indian PM Narendra Modi launches sweeping tax reform

India's biggest tax reform since gaining independence from Britain 70 years ago has caused anger and mass confusion. Critics say the new nationwide Goods and Services Tax (GST) tax is too big an overhaul.

Within hours of Indian Prime Minister Narendra Modi launching the country's new Goods and Services Tax (GST) tax during a special midnight parliamentary session early Saturday, companies complained they were already seeing large drops in business.

The roll-out of the new GST should see the country's complicated mix of 500 types of state and federal taxes amalgamated into one single sales tax, officials said.

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India's launches ambitious tax reform

One state won't charge new tax

But already one region - the conflict ridden state of Jammu and Kashmir - refused to sign on to the new regime, following mass protests by local traders.

Businesses nationwide complained after the government published a GST rule book which runs to more than 200 pages, which still allows some local authorities to impose additional charges.

In the southern state of Tamil Nadu, cinemas on Saturday were forced to announce a 30 percent levy on movie tickets in addition to the 28 percent GST fee.

Cinemas across the state said they would close next week in protest at the changes, warning that the sudden hike in prices would encourage illegal movie downloads.

Other traders' associations called strikes of their members as they too faced higher tax rates and were unsure which rate to charge.

"There is confusion right now," said Manish Arora, a New Delhi pharmacy owner who was selling medicine at the old prices. "My suppliers say they will be able to provide the pricing of medicines under the new system later Saturday."

Similar confusion was witnessed at state borders with goods-laden trucks stranded as officials wanted them to pay the new tax while the drivers claimed they had already been collected local municipalities, NDTV news channel reported.

Six months' notice

Several political parties, including the main opposition Congress Party, stayed away from the parliamentary ceremony, after urging the government to postpone implementing the new system.

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Rural India bears brunt of cash crunch

Although businesses were ordered in January to adopt or upgrade computer systems in order to comply with the new tax regime - which requires monthly tax returns to be filed online - opponents of the move said companies needed more time to recover from Modi's snap decision late last year to remove 86 percent of the currency in circulation.

The move caused chaos within the country's cash-dependent economy and hurt industries like construction and tourism.

Another concern is that many entrepreneurs participating in India's $2 trillion (1.75 trillion euros) economy aren't computer literate and rely solely on handwritten ledgers.

Sweeping change

India's Chief Economic Adviser Arvind Subramanian told reporters that while some "hurdles" were inevitable, most problems would be resolved within the next two months.

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The tax reform had been on the cards for more than a decade, but years of debate stopped it from progressing further. The idea had been proposed by the Congress Party before it lost power three years ago. At the time, Modi and his Bharatya Janata Party had been firmly against the move.

Under the GST system, products from shampoo to tea to cars will all be taxed within four broad categories - at rates of 5 percent, 12 percent, 18 percent or 28 percent. There are also a number of exemptions, including basic staples like fresh vegetables and milk.

nm,mm/jm (Reuters, AP)

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