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India's Lower House Passes Key Law For GST

by Mary Swire,, Hong Kong

07 May 2015

In a major step towards the adoption of goods and services tax (GST) in India, the lower house of Parliament on May 6, 2015, passed the Constitutional Amendment Bill to enable states to levy the GST on services.

Approval of this legislation is seen as a major step towards the introduction of GST from April 2016, after more than a decade of drawn out negotiations.

Under the GST proposals, the various elements of the existing indirect tax regime (including the VAT itself) will be replaced by a comprehensive dual-GST system, with Central GST and State GST to be levied concurrently by the center (federal Government) and the states, respectively. The centrally levied indirect taxes that would be replaced by the GST include CENVAT, the central excise duty, services tax, customs duties, and any related surcharges. State-levied taxes that would be subsumed by the GST include VAT, sales taxes, entertainment and gambling taxes, the luxury tax, certain entry taxes, and related state surcharges.

Proponents of the GST say that the tax will remove obstacles to the free movement of goods and services in the country. As things stand, an interstate transaction is subject to both central sales tax (CST) and VAT, while a transaction which takes place in a single state is only subject to VAT. The introduction of GST will also significantly simplify the tax regime, enable exporters to recover input tax, and remove distortions caused by cascading taxes.

Although India has made substantial progress towards the introduction of GST, in particular since the new government entered power, there are still a number of issues that must be resolved, such as agreeing a revenue-neutral rate (currently proposed to be as high as 27 percent), rates for different goods and services, and place of supply rules.

TAGS: tax | value added tax (VAT) | sales tax | India | gambling tax | VAT legislation | goods and services tax (GST) | luxury tax | excise duty | gambling | legislation | services

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