GST: Lessons for India from Other GST-Compliant Countries for Enterprises and Businesses
France was the first country to implement the GST. It said the reason for the new tax law was reducing tax evasion. After that, over 140 countries have gone through GST implementation, with about 80 still left to implement it. Some countries have adopted the dual-GST (like Canada, Brazil, etc.) model, whereas others have implemented the uniform version. India and Canada have roughly the same model of the GST.
Generally, the same GST concept has been applied everywhere. Prices change after GST implementation. In India, they will change after 1 July 2017. As a first step, the Government of India recently released tax slabs for goods. Although it is still early days to assess the overall impact, India can learn a lot from the experiences of other countries with the GST and understand ramifications and implementation issues.
Structure of the GST in other countries
Countries such as Singapore and New Zealand tax at a flat rate. On the other hand, Indonesia has implemented five positive rates, a zero rate, and over 30 categories for exemptions. In China, GST applies to goods only along with the provision for repairs, processing, and replacement services. The GST can be only recovered from goods in production. GST on fixed assets cannot be recovered. In Australia, the GST is federal and collected by Center and distributed to States.
Rates are crucial for GST implementation and impact
The main aspect of GST across the world has been rates. Canada reduced GST rates after implementation. There were countries that had to increase it. In Asia, nations such as Malaysia and Singapore adopted the GST without major hiccups. Some countries faced inflationary effect on prices, especially if the rates are were higher compared to earlier. For instance, Singapore saw push in inflation (1994) when it implemented the GST. Malaysia didn’t encounter inflationary pressures during transition to GST.
“GST implementation also has to do with proper tools, software, and technology. Once they are in place, major compliance issues get resolved,” said Shashank Dixit, CEO, Deskera.
Will the GST boost India’s economy and GDP growth?
Touted as the most radical tax reform after Independence, the GST will be out soon. Many believe it could fillip GDP growth by 2%, along with checking tax evasion. Also, the Indian GST system—the GST Council is working on a consensus—is a comprehensive tax (different from some other countries in this respect) which will gradually bring all goods and services within its ambit.
Will the GST will actually help India in the development of a national common market? Will there be free flow of goods and services? Only time will tell about India’s experiment with indirect taxation.
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