GOODS AND SERVICE TAX (GST)- A COMPARISON BY PALAK NENWANI

Adopted by France in 1954 GST has been introduced in more than 150 countries. This changing face of Indian taxation is the way towards which developing country like India should head for. The Constitution Amendment Bill for Goods and Services Tax (GST) has been approved by The President of India post its passage in the Parliament (Rajya Sabha on 3 August 2016 and Lok Sabha on 8 August 2016) and ratification by more than 50 percent of state legislatures. The Government of India is committed to replacing all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017. This taxation model has been a success in Australia, UK, Canada, and India envisage to ape the same.  With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST will be a game-changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of the tax on the cost of goods and services. It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system. GST will have a far-reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services, supply chain optimization, IT, accounting, and tax compliance systems.

Existing taxes i.e. Excise, VAT, CST, Entry Tax have the cascading effects of taxes. Therefore, we end up in paying tax on tax. GST will replace existing taxes.It achieves uniformity of taxes across the territory, regardless of place of manufacture or distribution and provides greater certainty and transparency of taxes. GST will not only avoid double taxation to some extent but also ensure tax compliance across the country.

 

Canada GST

In Canada, GST is applicable on the supply of most goods and services including real property and intangible personal property and is governed by Excise Tax Act. Canada has a federal government (like in India) and a federal GST was introduced in 1991 replacing the existing federal sales tax imposed on manufacturers and certain licensed wholesalers at a general rate of 13.5%. %).

Exports and supplies of goods and services relating to basic needs of individuals such as drugs and biologicals, medical and assistive devices, basic groceries, agriculture and fishing, transportation and travel etc. are taxed at the rate of 0% (zero-rated)[1].

Supplies of goods and services supporting public needs such as certain real property, healthcare, educational, child and personal care, legal aid, public sector bodies, financial services, ferry/road/bridge tolls etc. are exempted from GST/HST[2].

 

New Zealand GST

The New Zealand GST, enacted in 1988, was designed as a comprehensive tax base including many difficult-to-tax goods and services Rate of GST 12.5%.The New Zealand GST become an international benchmark for indirect tax design, for instance, the Institute of Fiscal Studies of United Kingdom considered the New Zealand GST model as the benchmark for evaluation of the European VAT Directives. Supply of certain goods and services such as exported goods and services, telecommunication services, the supplier is a territorial authority and the consideration for the supply is proceeding from the local authorities, sales of going concern (slump sale), the sale of land etc. are subject to GST at the rate of 0%.[3]

Australia GST

Implementation of New Tax System package in Australia including New Tax System (Goods and Services Tax) Act, 1999 is considered as a landmark change to the Australian tax system. The new GST replaced the federal wholesale sales tax and some state and territory taxes with a single tax rate of 10% tax on supply of most goods and services with some exceptions.[4]

As India moves towards a dual GST, there would be a hoard of changes required in the system.To begin with, the constitution of India would need an amendment.In any case, the first test for any tax reform in the country is to stand the test of constitutional validity.   Thus, becomes imperative that the GST is implemented within the reigns of the constitution.

Currently, the Centre is precluded from taxing purchase or sales of goods. This power has exclusively been preserved in the Constitution for the States. In turn, The States are preserved in the Constitution for the States. In turn, the States are precluded from the taxation of service. This division of taxation powers is time worn and goes back to the time the constitution was written with a few amendments to their credit.

Article 265 of the constitution lays down that no tax shall be levied or collected except by the authority of law.Schedule VII divides this subject into three categories:

  • Union list: Article 246 (1) of the Constitution specifies the Parliament has exclusive powers to make laws with respect to any matter enumerated in List I of the  Seventh Schedule to Constitution
  • State list: As per Article 246 (3), State Government has exclusive powers to make laws with respect to matters enumerated in List II
  • Concurrent list: Both Parliament and State Government can pass legislation with respect to items specified in this list.

There have been suggestions from the various front that concurrent powers be given to both levels of government to tax all supplies (or consumption), whether of goods or services. Since it would envisage all goods and services, the powers should extend to the taxation of land and buildings without any specific distinction. To prevent the extraterritorial application, state taxation should be limited to transactions within the state.

 

Thus, the suggestion doing the rounds is that while making the constitutional amendment, an expert panel should be formed to draft the suitable enabling provision for the concurrent taxation powers and recommend consequential modifications to the Constitutions. The constitutional powers could then be exercised within the framework of an agreement which is also known as national harmonization agreement .This agreement would bind the Centre and the States to a common tax base, legal provisions, and administrative procedures. A vital part of the agreement could be the creation of a centre–state body which would be accountable to both the levels of government.This body would be responsible for only the design and policy aspects of the GST administration.Each government would be responsible for the actual operations and delivery in their respective jurisdiction.

 

 

[1] Schedule VI [Subsection 123(1)] of Excise Tax Act

[2] Schedule V [Subsection 123(1)] of Excise Tax Act

[3] Section 11, 11 A, 11B, 11 AB, of GST Act, 1985

[4] New Tax System (Goods and Services Tax) Act, 1999

[5] http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst

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