History has been made in India today, at least for tax wonks: a bill to implement a Goods & Services Tax (GST) has been approved by both the Lok Sabha and Rajya Sabha (the lower and upper houses of Parliament), and key amendments proposed by the Rajya Sabha are expected to be confirmed by the Lok Sabha. Under Constitution (122nd Amendment) Bill, 2014, goods and services will be subject to a new uniform rate of tax at the national level.
This is big. The existing tax regime in India is notoriously complex and burdensome, with goods subject to different rates and rules in different states, interstate sales subject to a separate levy, and a federal tax on services and manufactured products. Inefficiency reigns, with trucks delivering goods throughout the country spending close to a quarter of their time dealing with the red tape that accompanies all these taxes. Perhaps most important, the current system hampers growth and impedes India’s ability to compete with China in the global market.
The need for simplification has long been recognized, and talk of a new consumption tax began more than 15 years ago. Until recently, however, political differences and concerns over shifting revenue and loss of state fiscal power have prevented action from being taken.
The GST will replace a number of indirect taxes, duties and surcharges, including:
- Central Value Added Tax (CENVAT), levied on the manufacture or production of movable and marketable goods in India
- Service Tax, a 15% tax levied on a range of taxable services
- Value Added Tax (VAT), an intra-state multi-point tax system levied on the value added at each state
It’s expected to greatly simplify the tax regime, although compliance is likely to remain complex. Implementation details are still being determined and will be unveiled in the coming weeks and months. Learn more about the Indian GST at Avalara VATLive.
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