Goods and Services Tax or GST was introduced in India in 2017, replacing major taxes such as Central Excise Duty, Service Tax, State Value Added Tax/Sales Tax, Central Sales Tax, Luxury Tax, etc. The idea behind the move was to unify the taxation system and simplify it under the “one nation, one tax” motto. It had been in the making since 2000, getting a real push in 2010, and finally getting down on the road in 2017.
GST Timeline For India
Over the years, starting way back in 2000, multiple committees have been set up to find a way to implement the new taxation structure. In the 2006-07 budget presentation, the then Finance Minister P. Chidambaram put GST as a goal to achieve by 2010. In 2011, the then central government introduced the 115th Amendment in the parliament, which was passed on to a Standing Committee, and finally passed in 2014 under the new government.
Finally, a deadline was set for 2016 to finally put into practice all reforms that were about GST. The act is known as The One Hundred Twenty-Second Amendment Act, 2016, was passed. GST thus came into effect from July 1, 2017.
Major Countries With GST Before India
The first country to implement GST was France, which had the taxation system put in place in 1954. Since then, countries such as Canada, United Kingdom, Australia, Brazil, Singapore, Italy, Spain, Vietnam, Monaco, Nigeria, South Korea, and India bring the total up to around 140. India itself has chosen the Canadian model of dual taxation.
The major countries with comparable GST structure as India are the commonwealth nations such as Canada, Australia, New Zealand, Singapore, and Malaysia.
Canada
Much like India, Canada had a multi-level VAT system until 1991, when it replaced it with a dual-level GST taxation system. Outside of essentials such as groceries, residential rent, and medical services, all other items are covered under GST. Much like India's version of CGST and SGST, Canada maintains a similar divide.
Canada also went ahead and ensured that a new operating system and new techniques were put in place to verify the legitimacy of the tax returns filed by small entrepreneurs. Although Canada still has a sales tax in place, leading to distortions in pricing across the country.
Australia
Australia introduced GST in July 2000, although the concept was introduced as early as 1975. The taxation starts at 10% and gradually goes upwards. A bunch of preexisting taxes such as wholesale sales tax, financial institutions duty, debit tax, and stamp duty on shares, mortgages, leases, and cheques have been entirely replaced by GST. A major criticism of their system is that the 10% tax rate has lowered the collection of taxes.
New Zealand
New Zealand introduced GST at a rate of 10% in 1986. The rates were gradually revised – once in 1989 to 12.5% and in 2010 to 15%. This was intended to help the country raise more taxes.
One of the issues with New Zealand's GST taxation was that it was levied at a single rate on all items, including food items. This led to a lack of compliance and, thus, higher administrative costs. However, New Zealand is the country with the highest tax collections among all OECD countries.
Singapore
Singapore introduced GST in April of 1994 at a rate of 3% in order to ensure the public would comply with such a low tax rate. It even promised not to increase tax rates for the next five years in order to ease the sudden change.
Singapore also has a compensation scheme in their system for the poor and underprivileged. They soon came under a bout of inflation, which led to a further reduction in rates to well below 2%.
Malaysia
Malaysia introduced GST in 2015, after long-wounded 26-year old debate over its implementation. It was introduced at a standard 6% rate, keeping it well below usual VAT rates in other ASEAN countries.
After its implementation, as the burden of the tax was transferred from the manufacturer to consumer, the tax burden on businesses reduced. However, it didn't quite have the projected effect on the growth of production.
GST in India Vs. The World
As evident from the discussion above, most countries that have GST prefer to implement it at a single tax rate in order to truly simplify the system. However, India has different tax slabs for different types of goods. Understanding of the needs of its majority population, India also exempts essentials such as basic food items and some other items as tax-free.
Other items are grouped as per their requirement in the day to day lives of the average citizen and taxed at a rate of either 0%, 5%, 12%, 18% or 28%. This applies to all goods such as food items, electronics, apparel, etc.
France is the country whose single taxation model resembles India most closely. Since 1954, they have stuck to their taxation structure of 2.%, 5.5 p%, 10%, and 20%. Although many argue that this defeats the purpose of a single taxation system, it affords more breathing space to manufacturers and consumers.
India has kept taxation relatively low. However, it still has some other taxation in place despite the shift to GST. Most countries that have GST have ensured that its the only taxation system in place.
The dual-mode of taxation that India has adopted, although inspired by Canada, is slightly different. Canada gives its provinces the option of choosing between central and state GST. India has both taxes serving a purpose.
The United States, which is the largest economy, is surprisingly not in favor of levying GST.
GST: A Step Forward
India is a country of massive population, and the implementation of any new structure takes years to fall in place. Going forward, it will gradually experiment with tax rates, tax slabs, subsuming other taxes in order to truly implement the idea of “one nation, one tax.”
A simplified way of handling registration, returns, input credits, and refunds must be devised in order to ensure more compliance and a problem-free taxation system in the country.
