This week India took a big leap towards the introduction of a federal Goods and Services Tax.
The New York Times writes:
“Technically, the parliamentary vote on Wednesday approved only a constitutional amendment on the new tax system, the first of many steps needed to enact the tax measure, usually referred to by its initials, G.S.T. The constitutional amendment must also be approved by a majority of India’s state legislatures and by the president. Once it is approved, which is expected, Parliament must enact legislation to create the new tax system, and individual states must pass their own laws.”
So the federal GST legislation will be very similar in its workings to the EU VAT Directive: the federal government sets the umbrella legal structure and it will be up to the various states to write the actual GST legislation that the state government and registered businesses should use.
The introduction creates a significant risk of inflation, and therefore the government wants to tread lightly on the question of the GST rates, which has not been settled yet.
“Some of the major features of Indian GST include:
- Based on OECD and EU recommended principles
- It helps create the world’s largest ‘single market’
- It is charged on the final consumer at the location (State) of consumption – the destination concept
- It reduces fraud by charging GST throughout the production chain, although businesses can recover it via their returns to ensure no costs to them
- Like Canada, the regime has two levels: Center (CGST) and State (SGST) which are combined as Integrated GST (IGST)
- Over 7 million business have to register, charge and file monthly GST returns
- There is a GST registration threshold of INR 9 lakhs
- It is levied on most goods and services
- There are exemptions or reductions for key services, including: basic foodstuffs: public services: healthcare: education; and financial services”
Implementation is expected at some point in 2018, if not later.
As always, let me know if you would like to discuss the impact on your business.
See for the New York Times article here:
And Avalara has more here:
India approves GST