Millions more companies are now paying tax in India

India's PM Modi defends globalization
India's PM Modi defends globalization

Millions of Indian firms are paying into government coffers for the first time thanks to an overhaul of the tax system.

An estimated 3.4 million businesses have registered to pay India's national goods and services tax since it was rolled out in July 2017, the government said in its annual economic survey released Monday.

That's in addition to the country's existing 6.4 million business taxpayers, the survey said.

"This number is very impressive," said Prasanna Tantri, who heads the Centre for Analytical Finance at the Indian School of Business. "It's a big improvement in compliance."

The 3.4 million figure includes some firms who register more than once because they do business in more than one Indian state. But Tantri estimates that such businesses are likely to account for only about 10% of the new registrations.

Related: India finally gets its 'big bang' tax reform

The tax overhaul -- one of Indian Prime Minister Narendra Modi's key policy moves last year -- has been touted as a game changer for the Indian economy.

It replaced a complex web of tariffs -- which often differed from state to state -- with one set of nationwide tax brackets for products, effectively turning the country into a single market for the first time.

But the introduction of the new tax system was plagued by setbacks, with confusion over online filing and the various rates leaving some businesses, particularly smaller ones, struggling to adapt.

The teething pains, coupled with Modi's shock ban on 86% of the country's cash in November 2016, were blamed for dragging India's economic growth down from 7.1% to 5.7% in the first half of 2017. Growth has since ticked up slightly to 6.3% in the quarter ended September.

The government said Monday that it expects growth to recover to above 7% in 2017-2018 as the economy shrugs off the negative impact of the policy disruption. It listed the main goals for next year as privatizing national carrier Air India, completing a $32 billion bank bailout and stabilizing the new tax system.

Related: India's small firms reel from 'terrible year'

Tantri says simplifying taxation further will result in more companies entering the tax net, adding that there are signs that India's large informal economy is becoming increasingly regularized.

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