The Indian government has passed the long-awaited Goods and Services Tax (GST) Bill to create a single market for VAT style payments, abolishing the country’s complicated fragmented sales tax system, set to come into effect by April 2017
The bill, which has been debated for almost a decade, will replace the current sales tax system that is a complexity of multiple rates and instead there will be a single value added tax system for the whole country.
The single tax rate will reduce costs for shipping goods, close tax loopholes and tax more businesses, some of which were left untaxed by the previous system.
With only six months to roll out the new system, by next March the government plans to train 60,000 officials working in the central and state governments on GST laws and the IT framework. Before the employee training can start the government has to brief 1,375 trainers by the end of October.
The GST will come into effect from 1 April 2017.
GST could take some time to come into effect although it has a deadline of April 2017, this is because many states still need to approve the bill before it becomes law. The government then need to decide the tax rate which has been suggested at 17-18%.
The current tax system contains many distortions that result in substantial tax cascading and inefficient production and consumption structures. One of the main objections to any change to sale tax has been disputes over the calculation of the revenue base, which currently is allocated locally.
The tax regime aims to boost economic growth with estimates showing growth of more than 2%. It will also remove taxes at the different state borders within the country.
GST is simpler to administrate for the government and will result in better tax compliance. It will also lead to higher revenue as the new system will decrease the cost of tax collection.
Transparency of taxes will increase as in the previous tax system the costs of most goods and services were loaded with many hidden taxes, however under GST there will only be one tax from the manufacturer to the consumer.
Due to the federal state of India there will be two components to GST, these are Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain and tax will be levied on every supply of goods and services.
FAQs on Goods and Services Tax (GST) is here.
The next steps to implementing GST is here.
