India's New GST Intended To Simplify Sales Tax

by Lorys Charalambous, Tax-News,com, Cyprus

02 January 2008

India's new Goods and Services Tax, expected to come into force in 2010, will be applied to trading in non-processing areas in Special Economic Zones, according to the most recent draft of the proposed new law.

Non-processing areas, comprising social infrastructure such as schools, residential premises and shopping complexes, and supplies to them are exempted from both Central and state taxes in the present regime, including VAT. The joint ministerial working group on the GST has also recommended that sales from SEZs to the domestic market should attract GST.

Initial proposals for the GST were made in 2004, and Finance Minister P Chidambaram appointed a panel in 2007 to begin discussions with the states, in order to reach an agreed platform for the new tax, which will sit alongside VAT.

That the GST is seen as a major step towards simplification of the sales tax system gives some idea of the horrific complexity of the existing regime.

Asim Dasgupta, West Bengal's Finance Minister, said: "An attempt will be made to subsume or integrate as many taxes on manufacturing and consumption as possible and feasible. We will ensure there is no double taxation. The tax rate would depend on the requirements of revenue neutrality, but there may not be only one rate."

Certain local goods and service levies, although not all, as had been hoped, are set to be absorbed by the new tax.

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