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India Should Target Simpler GST Regime: World Bank

by Mary Swire,, Hong Kong

16 March 2018

The World Bank has released a new report that recommends how India can simplify and improve the efficiency of its new goods and services tax regime, which was introduced in July 2017.

The report says "India's GST system is relatively more complex, with its high tax rates and a larger number of tax rates, than in comparable systems in other countries." In addition, it said at state level there was a "lack of clarity on discontinuation of local taxes."

GST replaced a plethora of indirect taxes: at central level, these included CENVAT, the central excise duty, services tax, customs duties, and related surcharges; at state level, these included VAT, sales taxes, entertainment and gambling taxes, the luxury tax, certain entry taxes, and related state surcharges.

The report highlighted that although GST has been a "historic reform" that has provided Indian businesses with a simpler tax landscape, India urgently needs to reduce the administrative tax compliance burden and to speed up refunds, noting that both have hindered business activity and their cash-flow.

The high compliance burden is in large part the result of multiple tax rates, it said, noting that inputs towards a final supply can be subject to a number of different rates of tax, as well as the final supply being subject to a different rate also.

On reform, it said: "Key to success is a policy design that minimizes compliance burden, for example by minimizing the number of different rates and limiting exemptions, with simple laws and procedures, an appropriately structured and resourced administration, compliance strategies based on a balanced mix of education and assistance programs and risk-based audit programs. A nuanced communications campaign is crucial to convey the various aspects of the new system of GST among businesses, consumers, and key intermediaries, such as tax practitioners, as well as among the tax administration itself and the political class."

Overall, the report concluded that, despite "teething problems," Indian policymakers should look at the process of GST through a wide lens and avoid short-termist policies. It highlighted that, in the long-term, the benefits of GST will far outweigh the short-term costs.

TAGS: compliance | tax | business | sales tax | tax compliance | India | law | goods and services tax (GST) | luxury tax | tax rates | services

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