Hype and hyperbole are temptations to which government officials, in particular, must not succumb. Yet, it is difficult not to view the Goods and Services Tax (GST) Bill as a game-changing reform for the country; and, when it happens, it would be curmudgeonly not to acknowledge its passage as a major, historic achievement. Why is GST important? What can be said about its design? How does it compare with similar tax reform in other countries? Consider each question in turn. Benefits in the offing: Three major benefits will flow from the GST. First, as the Prime Minister outlined in an interview, the GST will increase the resources available for poverty alleviation and development. This will happen indirectly as the tax base becomes more buoyant and as the overall resources of the Central and State governments increase. But it will also happen directly because the resources of the poorest States – for example, Uttar Pradesh, Bihar, and Madhya Pradesh – who happen to be large consumers will increase substantially. Second, the GST will facilitate ‘Make in India’ by making one India. The current tax structure unmakes India, by fragmenting Indian markets along State lines. These distortions are caused by three features of the current system: the Central Sales Tax (CST) on inter-State sales of goods; numerous intra-State taxes; and the extensive nature of countervailing duty exemptions that favours imports over domestic production. In one fell swoop, the GST would rectify all these distortions: the CST would be eliminated; most of the other taxes would be subsumed into the GST; and because the GST would be applied on imports, the negative protection favouring imports and disfavouring domestic manufacturing would be eliminated. Third, the GST would improve – even substantially – tax governance in two ways. The first relates to the self-policing incentive inherent to a valued-added tax. To claim input tax credit, each dealer has an incentive to request documentation from the dealer behind him in the value-added/tax chain. Provided the chain is not broken through wide-ranging exemptions, especially on intermediate goods, this self-policing feature can work very powerfully in the GST. The second relates to the dual monitoring structure of the GST – one by the States and one by the Centre. Critics and taxpayers have viewed the dual structure with some anxiety, fearing two sources of interface with the tax department and hence two potential sources of harassment. But dual monitoring should also be viewed as creating desirable tax competition and cooperation between State and Central authorities. Even if one set of tax authorities overlooks and/or fails to detect evasion, there is the possibility that the other overseeing authority may not. Other benefits such as the boost to investment have been documented in the Report on the Revenue Neutral Rate that was submitted in December last year. Of course, these benefits will only flow through a well-designed GST. The GST should aim at tax rates that protect revenue, simplify administration, encourage compliance, avoid adding to inflationary pressures, and keep India in the range of countries with reasonable levels of indirect taxes. The fewest flaws at inception: The report also urged that the GST be comprehensive in its coverage, that exemptions from the GST be limited to a few commodities that catered to clear social benefits, and that most commodities be taxed at the standard rate. There is no free lunch here. There is no escaping the fact that the more the exemptions/exclusions, the higher will be the standard rate which could affect poorer consumers. Some have levelled the charge that the design of the GST is flawed. But the “flawed GST” charge fails to appreciate how reforms actually occur. In no country is the GST – even today after many years of implementation – perfect, and was therefore quite flawed at inception. In complex systems, change is introduced, learning from implementation takes place, leading to further and better change. That is what happened with the implementation of the value-added tax by the States and that is what will happen with the GST. It is far better to start and allow the process of endogenous change to unfold over time than to wait Godot-like for the best time and the best design before it is introduced. That said, we must also be realistic about the time frame for assessing the GST. The GST is fiendishly, mind-bogglingly complex to administer. Such complexity and lags in GST implementation require that any evaluation of the GST – and any consequential decisions – should not be undertaken over short horizons (say months) but over longer periods, say one-two years. In understanding GST systems around the world, we have been struck by how ambitious and how under-flawed the Indian GST is. GST-type taxes in large federal systems are either overly centralised, depriving the sub-federal levels of fiscal autonomy (Australia, Germany, and Austria); or where there is a dual structure, they are either administered independently – creating too many differences in tax bases and rates that weaken compliance and make inter-State transactions difficult to tax (Brazil, Russia and Argentina) – or administered with a modicum of coordination which minimises these disadvantages (Canada and India today) but does not do away with them.