• Is a premium economy ticket taxed as business or economy?
  • GDP growth on horizon as part of shadow economy formalizes

If there’s one word that sums up the response of India’s businesses and consumers to the country’s new national sales tax, it’s ‘confused.’

Will premium economy seats be taxed as economy class or business? Is a chocolate-coated biscuit a biscuit or chocolate? These are the questions now troubling businesses large and small across India’s $2.3 trillion economy.

The roll out of the goods and services tax came less than a year after the government’s shock withdrawal of 86 percent of the nation’s currency, which helped knock India’s GDP growth down to 6.1 percent from 7.1 percent in the January-March quarter and eliminated as many as 1.5 million jobs.

Tax Milestone

After more than a decade-long journey, the biggest tax reform since independence in 1947 became a reality on July 1, combining more than a dozen levies into one tax.

Read more: Bribes, Borders and Middlemen: Why India’s GST Is a Game Changer

Many Indians responded by sharing their first GST bill on WhatsApp, Facebook and Twitter. The novelty soon wore off. Small traders and businesses struggled to issue invoices and battled with the new software, with some forced to provide handwritten invoices to customers.

In an attempt to cut through the confusion, the government held tax ‘master classes’ and published advertisements in the newspapers showing the revised prices alongside the old prices of goods.

Checkpoints Abolished

About two dozen states of 29 have abolished check points at their borders, where tax compliance and goods inspections used to delay deliveries — often by days.

Yet while travel time has been reduced as tax inspectors disappear from the roads, transport department officials are still actively checking vehicles. Transportation of illegal goods has reduced because those businesses cannot provide GST-compliant bills.

“People are finding it tough to understand the GST,” said Pradeep Singal, national president of the All India Transporters Welfare Association. “This has meant that companies had ordered in advance and are still using old stocks,” pushing down transport business by 30 percent.”

Confusion Reigns

Traders, particularly in small towns, are struggling with their lack of knowledge of the new tax regime — compliance obligations, raising invoices and accessing input credits, said Praveen Khandelwal, secretary general of the Confederation of All India Traders.

Small merchants and e-commerce companies are tripping over a dizzying array of documents and…