Goods and Service Tax: The International Experience
Submitted by root on Tue, 08/29/2017 - 08:45
The most awaited economic reform, GST – for a simplified and uniform tax
rate were passed in parliament on 3rd August 2016.
This GST by subsuming CENVAT (Central VAT) and state VAT, reduces
the burden of taxes on consumers and simplifies the compliance of
taxation norms for industries & investors.
But this GST being a destination based tax will shift from state of
origin to state of consumption which will led to loss of revenue for
manufacturing and developed states.
Therefore, consumption or destination states (like Odisha, Uttar
Pradesh, Bihar & Kerala) stand to gain while origin states (like Tamil
Nadu, Gujarat, Maharashtra) stand to lose.
1. The international Experience shows that the success of GST
depends mostly on model & effective implementation. For Example:
Experience in countries like Australia, Canada and New Zealand shows that this
results in better fiscal finance and price stability.
2. International experience also shows that inflation went up
in short term as lot of new services and goods taxed under GST which were not
taxed earlier. Therefore, on one hand there is possibility of mitigation of
cascading effects and increased revenue base for government; on the other hand,
there is possibility of spike in prices also.
3. The macro economic indicators like GDP growth rate, fiscal
balance, current account balance, Tax – GDP ratio have improved in most of
countries. For example: Canada, Australia, New Zealand, Singapore and U.S. etc.
Therefore, making these economics more competitive generating revenues through
better exports & leading to price stability.
4. Similar to Indian context, it is only Canada that has
concept of dual GST.
In Canada, the GST replaced the manufacturer's Sales Tax and
came into force in 1991 leading to better macro economic performance in terms of
growth, government finance, tax revenues etc. in post GST period.
International Experience Lessons
1. The main challenge encountered by most GST countries was
that of GST's inflationary nature especially when the effective tax rate is
higher than what prevailed earlier. For instance, Singapore saw spike in
inflation in 1994, when it introduced GST. Therefore, it is important for
administrators to keep tabs on how prices move after GST's implementation.
2. Another key lesson, is that businesses need to start early
with the implementation process to be GST ready. As for example:
Malaysian Government received strong resentment even after providing one & half
year for GST preparedness. Given the complex GST model in India, and the need
for businesses to undergo a transformation to adapt to the GST regime, it will
be quite challenging for Indian government to tackle.
3. The international experience's lesson also suggest that it
is necessary to keep exemptions in GST minimum as keeping exemptions list long
will not enhance states fiscal autonomy, making tax base narrower etc.
Example: New Zealand has the least number of exemptions and the most
comprehensive coverage of GST.
4. Also the government needs to go for a successful 'Digital
India' programme as GST will require a state of art IT infrastructure and
ensuring this high speed. IT connectivity across states with huge geographical
disparity will be a challenge in such a short time.
Conclusion: From the international experiences &
lessons learnt there is no denying that acceptance of GST by general public,
businesses and firms would not be an easy task but with (1) advance planning and
extending adequate time to industry, (2) continued dialogues between business &
administrators, (3) engaging with industry on implementation of planning, (4)
Timely release of legislative documents, have proven to aid in smooth GST
implementation in many countries.
Some Facts Related to GST – Implementation globally
Around 160 countries in world have implemented VAT/GST.
ASEAN – 7 countries
ASIA – 19 countries
EUROPE – 53 Countries
AFBICA – 44 countries
France – was one of the first country to implement GST in 1954, followed
by Germany – 1968
United Kingdom - 1973
Typically GST a unified tax system but countries like Canada & Brazil
have dual GST like India.