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India Goods & Sales Tax (VAT) implementation breakthrough

  • Jan 31, 2013 | Richard Asquith

India Goods & Sales Tax (VAT) implementation breakthrough

This week, there was significant agreement between the Indian centre and state governments on the outstanding issues blocking the full implementation of a new Goods & Sales Tax (GST). This could lead to the roll out of the long-delayed new consumption tax regime at the start of 2014.

Current Indian VAT, CENVAT and Service Tax needs overhaul

The Indian VAT system in place at the moment is a complex set of taxes, which place a high compliance burden on companies and led to significant double taxation on intra-state transactions. It also encourages significant levels of errors and fraud.

Plans to simplify the regime into a single levy, GST, were initial presented over ten years ago, but ran into difficulty because of conflicting claims over tax collection rights between the centre (Indian CENVAT) and states (Indian Service Tax).  Read about Indian GST reform here.

Compromise on partial roll out

This week, the two governmental tiers agreed two crucial points that will enable the preparation of a detailed legal Bill. These are

  • Allowing a voluntary roll out state-by-state
  • Dropping the plans for a central dispute body
  • Following this agreements, new working parties will be established to review key elements of the new regime, including:
  • Place of supply, and therefore which state’s GST to follow
  • Tax rates and exemptions
  • Thresholds for GST registration
  • GST on intra-state trading and imports/exports

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara