NOTHING in India is ever simple. It is too vast, too diverse, too argumentative and too democratic for any of its problems to lend themselves to easy answers. So an idea as revolutionary in its simplicity as a single, nationwide goods-and-services tax (GST) was never likely to go smoothly. Even so, it is disappointing that negotiations under way this week seem likely to result in a tax so complicated and multi-tiered that many of the benefits it offers will be bickered away before it is launched (page 72). One of its architects has lamented that, on present plans, it will reap only one-quarter of the extra economic growth that it could have stimulated.

Introducing a nationwide tax to subsume India’s bewildering profusion of central, state and lower-level indirect taxes has been a decades-long effort. Passage of the legislation in August was seen as a triumph for Narendra Modi, the prime minister, and the biggest proof of his reformist credentials. The tax’s precise mechanics are being determined by a new body, the GST Council, combining the federal government and representatives of India’s 29 states. The hope is to reach agreement in time for the beginning of the next fiscal year in April 2017.

Advocates see three great benefits from the tax: the creation of a single market, greater efficiency and a shift of activity into the formal economy. India has been engaged in a long, slow transformation from a federation of states with their own tax systems and border controls into a single national market. This year a government study found that the average Indian lorry spends 16% of its time waiting at checkpoints. The GST should remove one of the biggest causes of delay—the levying of local sales taxes. It will also do away with the distortions caused by the same products being taxed at different rates in different states.

This significant economic boost is not yet in danger. But current plans forgo the second benefit, the tax’s efficiency-enhancing potential, by having a complex set of rates for different goods—perhaps seven or more, ranging from 4% to 26%. This will distort the economy by nudging producers towards goods subject to the lowest tax rates.

Many countries, including rich ones, charge different levels of sales tax on different products. Those such as India, with many poor people, are right to exclude food and basic consumer goods from the tax regime altogether (about half the basket of goods covered by the consumer-price index will be GST-exempt). Punitive “sin” taxes on, say, tobacco also have a place. But administering complexity of the level that India is contemplating will be a nightmare—and expensive, too. Because the rates will probably be set high, the tax will also foster evasion. That will threaten the GST’s third big advantage, of bringing business into the formal economy. And the high differentials will spawn “classification” disputes, like the one that reached the Supreme Court in 2006 on whether a hair-oil should be exempt from sales tax because, as coconut-oil, it was edible.

Aiming too high

The complexity stems from the fear that the shift from the present labyrinthine system would cost too much in lost tax revenue. The central government has promised to reimburse the states for the revenue lost from local sales taxes. The direct-tax base is narrow: of India’s 1.3bn people, only some 4% pay direct taxes. So the central government’s bias is to set indirect-tax rates high lest it miss its fiscal targets, and this urge is leading to the possible miasma. Better to introduce the GST in a less compromised form, even if that means a temporary widening of the budget deficit. And better to fix the deficit through the higher sales-tax receipts that enhanced growth would bring—and through finding ways of making more well-off Indians pay their dues.