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GST Bill Introduced In India

by Mary Swire, Tax-News.com, Hong Kong

01 April 2011


The Indian government has introduced into Parliament a nationwide Goods and Services Tax (GST) bill which aims to cut business costs and boost tax revenues. The bill has, however, already been delayed by two years and is therefore expected to miss the April 2012 deadline for implementation.

Finance Minister Pranab Mukherjee has been persevering for a considerable length of time with his plans to introduce a bill to amend the Constitution in order to be able to roll out the GST.

He has, however, faced obstacles in the shape of the main opposition Bharatiya Janata Party (BJP) and states which have been concerned about a loss in their revenue, as well as worries that the tax reform will give too much power to the federal government. This has been despite the Finance Minister agreeing to fully compensate states' losses.

The GST will be an indirect tax, imposed by all states and the federal government, that would replace existing levies such as central sales tax, state sales tax, entertainment tax, lottery tax, electricity duty, stamp duty and value-added tax (VAT). Exports and direct taxes such as income tax, corporate tax and capital gains tax will not be affected. 



The tax will be collected on goods and services at each stage of sale or purchase in the supply chain, and there will be a tax credit mechanism set in place. The end consumer, as the last person in the supply chain, will bear the final tax.

The rate of GST is expected to be around 14-16%. Currently, services are taxed at 10% and the combined charge indirect tax on most goods is around 20%.

The Indian Government hopes that introducing GST will lead to a corruption-free tax administration, and an increase in tax income because of more efficient collection and increased compliance. It has been estimated that India could gain USD15bn a year as a result of increased exports and employment.

The government had originally planned to roll out GST from April 1 last year, but a consensus could not be reached as the Bill is required to be passed by a two-thirds majority in both the houses of parliament. The GST bill will first go before a committee before returning to parliament for a vote.

TAGS: compliance | tax | business | India | excise duty | tax reform

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