DESCRIPTIVE STUDY ON GST & ITS WORLDWIDE IMPLICATIONS

Dr. Mamta Ratti, Assistant Professor,

M.C.M.D.A.V. College for Women, Chandigarh

Mamtaratti.rbim@gmail.com

09815104499

Abstract:

Introducing Good & Service Tax in Indian economy will minimise the cost of production,
prices through tax cascading. It will replace almost all indirect taxes from the Indian tax
structure. Although, GST may be new phenomenon for Indian economy, it was adopted by
many developed and developing countries few years back. Latest GST has been introduced
by Malaysia in 2014. The objective of the paper is to study the effects of GST on overall
economic scenario of the different countries of the world. It is a descriptive paper in which
the observations shall be collected through detailed study of secondary sources. There are
many challenges faced by the government before implementation of the Act such as conflicts
between state and centre government over tax rates and tax-sharing arrangements, preparation
in terms of training and software infrastructural requirements, expensive goods and services
in few cases, high tax rates and imperfection in tax collection system.

It will definitely contribute few suggestions in the form of the guidelines for the
implementation of the Act smoothly in India.

Key Words: Goods and Service Tax, Global scenario, Implications, Observations
 DESCRIPTIVE STUDY ON GST & ITS WORLDWIDE IMPLICATIONS

Dr. Mamta Ratti, Assistant Professor,

M.C.M.D.A.V. College for Women, Chandigarh

Mamtaratti.rbim@gmail.com

09815104499

Paper

Background:

Goods and service Act is believed as a landmark tax reform since independence of India. It is
a key step for making ease a cumbersome tax system of India. The implementation of Goods
and service Tax minimises the efforts of overall taxation system by clubbing almost all
indirect taxes, duties, surcharges into single tax. It is helpful in easing the overall taxation
system, in movement of goods across the state borders, in curbing tax evasion, improving
compliance, etc. As a result of effective implementation of the tax structure, Indian industry
may get benefits of stimulating investment and profitable returns for the manufacturers,
maximizing profit margins, minimising cost of production and making more competitive for
the global competitiveness. Firm Deloitte mentioned in a report about the implementation of
Goods and services Tax Act or Value Added Tax in almost 160 countries in different forms.1
As per the latest figures, India is a $2trillion economy with almost 1.3 billion customers’ big
market.

Infosys an Indian software giant is assigned to prepare electronic infrastructure of GST portal
for the effective implementation. It is assumed that almost 7.5 million business firms will be
covered under the electronic portal of GST. To change in basic tax structure is a great and
adventurous job initiated by the Government which is matter of proud. It is a tax reform
whereby the tax burden is shifted to the state of consumption instead of the state of
manufacture of goods and services. Bihar and Bengal, both the state may be most beneficial
states due to the higher population but lower production ratio.

1
Biswas Soutik Why India’s GST is one of the World’s most complex tax reforms, BBC
News, 4th August 2016
Deloitte suggested the dual form of GST to be administered at the federal and state levels.
Indian Goods and Service Tax will jointly administered by the federal and state Governments.
There will be total set of 38 different taxes which includes:

29 GST Acts one for each states, 7 Act for each union territory, a federal GST and an
integrated GST on inter-state supplies of goods and services. Thus it is considered as world’s
most complex tax reform. There are many challenges faced by the government before
implementation of the Act such as conflicts between state and centre government over tax
rates and tax-sharing arrangements, preparation in terms of training and software
infrastructural requirements, expensive goods and services in few cases, high tax rates and
imperfection in tax collection system.

John Freebairn (2013) of University of Melbourne described the Goods and Service Tax as a
“destination tax”. He explained the reason to mention it as a destination tax because it
excludes exports and includes all produced in, or imported into Australia. Australian Taxation
Office (2015) confirmed that few most basic services such as few educational courses as well
as few basic medical services and products are exempted from the time of adoption of the
GST in Australia.

GST Definition:

The Goods and Service Tax is a Canadian value-added tax levied on most goods and services
sold for domestic consumption. The tax is levied to provide revenue for the federal
government. The GST is paid by consumers, but it is levied and remitted to the government
by businesses selling the goods and services.2

GST stands for Goods and Service Tax which is a comprehensive tax levied on manufacture,
sale and consumption of goods and services at the national level. It will replace almost all
indirect taxes levied on the Goods and services by the Indian Central and State Governments.
It is aimed at being comprehensive for most goods and services.

2
Investopedia, http://www.investopedia.com/terms/g/gst.asp as on 21st October 2016
The Goods and Service Tax Bill or GST Bill known as ‘The Constitution Bill, 2014’ would
be a Value Added Tax implemented from April 2017.3.

GST Model:

The GST Bill passed with full majority in the Rajya Sabha and Lok Sabha in the month of
August 2016. It aims at boosting national economy and attracting fresh investments. It will
avoid multiplicity of tax and generate revenue for Government in a better way. It is also one
drawback of the model that the income generated in few states with higher manufacturing
ratio will be decreased. Indian central Government has taken the initiative to compensate the
losses at the state level for five years.

The GST model has already indicates the entities lies under its jurisdiction. The GST bill
comes under the Centre which creates feasible condition for the Tax Payers. The importance
of the unbelievable tax reform can be understood by the problems faced by the society due to
existing Indirect Tax structure in India. Following problems are inculcated in the present
indirect Tax regime:

Sources: https://en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill as on 23rd October

2016

3
wikipedia, https://en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill
Multiplicity of Taxes:

The constitution empowers the Central Government to levy excise duty on all manufacturing
as well as service tax on the supply of the services rendered in India. State Governments are
empowered by the constitution to levy sales tax or value added tax. The division of the fiscal
powers led to the multiplicity of indirect taxes in the nation. Central Sales Tax is levied by the
Central Government on the inter-state sale of goods but collected and retained by the
exporting states. Few states levy an entry tax on the entry of goods in their geographical area.
There is a complex tax regime in which tax payer is required to pay taxes to the centre
Government, state Government and Local Government. Tax payer has to contact various
authorities for the payment of tax and to maintain separate records for the same.

Complex:

Taxes are levied by the centre, state and local government at the different stages. Tax payer
has to maintain tax records separately for each authority payments. The multiplicity has
resulted into a complex indirect tax regime. The complex tax structure requires the higher
cost for the industry and commerce.

Cascading effects of taxes:

Indian tax payer, businessmen or manufacturers pay tax on tax due to cascading of taxes.
Trader is not eligible to get benefits of already paid excise duty and service tax paid at the
stage of manufacturing goods and services at the time of payment of state level sales tax or
VAT. No one can claim the credit of state taxes paid in one state can be availed in other state.
Cascading of taxes is resulted into the inflated prices for the society.

Multiple Compliance:

Each state have its unique way of calculation of levied taxes, different dates of filling return,
various frequency for filing return and different due dates of payment of Taxes. The overall
factors make compulsion for the taxpayer to maintain separate records to cope up with the
different set of laws. Following is the small example of the current scenario which creates
problems:
 Return filing Due date of Filing Due date of Pmt of
Applicability Law
frequency Return Tax

For each Excises Monthly / 10th of succeeding 10th of succeeding

Factory Duty Quarterly month month

For each Service 25th of succeeding 5/6th of succeeding

Half Yearly
premises Tax month after Half year month

Karnataka VAT Monthly 20 days 20 days

Assam VAT Monthly 21 days 21 days

Tamil Nadu VAT Monthly 20 days 20 days

U.P. VAT Monthly 20 days 20 days

A.P. VAT Monthly 20 days 15 days

Kerala VAT Monthly 15 days 15 days

Gujarat VAT Monthly 30 days 22 days

Maharashtra VAT Monthly 30 days from half year 30 days

Delhi VAT Monthly 25 days 25 days

30th of month following up to 10th of following

M.P. VAT Quarter
qtr. month

30th of month following up to 14th of following

Rajasthan VAT Quarter
qtr. month

W.B. VAT Quarter 30th or 31st of month 30th or 31st of month

 following qtr. following qtr.

1 month from end of 1 month from end of

Tripura VAT Quarter
Relevant Qtr. Relevant Qtr.

Himachal 30th of Expiry of each 10 days before expiry

VAT Quarter
Pradesh Qtr. of Return filing

Source: https://en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill as on 23rd October

2016

Tax Arbitrage:

Arbitrage is the business transactions occurred due to the variations in the tax rates. It
increases the prices of the manufactured goods and services in manifold. It induces the
manufacturing activities into the states with lower tax rates. The differential VAT Rates
implement in the various states of India is as under:

S. No. State VAT Rate in Percentage

Essential goods General rate

1 Andhra Pradesh 4.00 14.50

2 Assam 5.00 13.50

3 Bihar 4.00 12.50

4 Chandigarh 5.00 12.50

5 Gujarat 5.00 15.00

6 Haryana 5.25 13.125

7 Himachal 5.00 13.75

 Pradesh

8 Karnataka 5.00 13.50

9 Kerala 4.04 12.625

10 Madhya Pradesh 5.00 13.00

11 Maharashtra 5.00 12.50

12 Delhi 5.00 12.50

13 Rajasthan 5.00 14.00

14 Tamil Nadu 4.00 12.50

15 Tripura 4.00 12.50

16 Uttar Pradesh 5.00 13.50

17 Uttarakhand 4.50 14.50

18 West Bengal 4.00 13.50

https://en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill as on 23rd October 2016

The variations in the VAT can be seen through above mentioned figures. The entry tax is also
varied in few states which plays demotivating factor for attracting trade in the state. The
Proposed Model for Goods and Service Tax can be explained through following Model in
which it can be analysed that maximum indirest taxes are convered under its scope.
https://en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill as on 23rd October 2016

The above mentioned model is self-explanatory from which it can be seen that Central Sales
Tax and Service Tax will be covered under the scope of Central Goods and Services Tax
whereby all other indirect taxes such as entry tax, luxury tax, taxes on advertisement will be
covered under the scope of State Goods and Service Tax. Following are the features of the
Indian Goods and Service Tax regime:

a) It is a destination based taxation system.

b) As it can be analysed from the above figure and discussion, it has dual
administration:- Centre and State.

c) It is considered that there is no centralized registration, State wise determination of

taxable persons. Seamless credit amongst goods and services.

Universal GST implications:

To implement Goods and Service Tax in a world’s second largest in terms of population /
consumers will be very difficult task. It needs proper planning for the effective introduction
of the tax reforms in Indian economy. As discussed earlier nearly 160 countries have already
implemented Goods and Services Act or Value Added Tax in one way or another, the
implications of the reforms can be traced out from their experiences. The policy makers may
get the observations from the GST implementation implications from the countries such as
Canada, Malaysia, Singapore, etc.

Goods and Service Tax Act has one or the other form of implementation all over the world.
Few countries implemented Value Added Tax as a substitute of the GST. Goods and Service
Tax is different from the VAT because of its nature such as destination based tax on
consumption of goods and services. The most challenging problem faced by the maximum
countries is rationalization of an adoption of Rate Structure. GST is comparatively highly
charged Tax as compared to VAT.

Canada:

India has a dual structure for GST which is very complex strategy. All over the world only
Canada has the same dual GST system. Although at the time of the introduction of the Goods
and Service Act in Canada, there was a great opposition raised by the political parties, the
Canadian government have been able to successfully implement it with few changes. The
Canadian Government reduced drastically Tax before implementation which made the
success roadmap for the Tax Reform itself. The Goods and Service Tax Rates are still the
challenging issue for all over the world.

Rates issue is also faced by the Indian Government and decreased the proposed GST rates
from 27% to 16% - 18% for effective implementation. In case of the high rates social issues
can be raised by the stakeholders.

Australia:

Goods and Service Tax was introduced in Australia in July 2000. It was the Indirect tax
reform which replaced with the previous Federal Wholesale sales tax system. It was designed
to phase out a number of various State and Territory Government taxes, duties and levies
such as banking taxes and stamp duty. It is quite similar to the European Union’s VAT system,
requiring re-calculation and payments to the tax authorities at each transaction point of the
sales chain. Grattan Institute Report found the reason behind the lower rates of the Goods and
service Tax rates in Australia was its agenda of creating sustainable revenue base for the state
governments in the future at the time of introduction of Tax in economy in the year 2000.
Australia is the country which introduced the GST with lower rates among the OECD nations
as per 2015 figures. The average rate of GST in OCED nations is around 19.2 per cent. Only
three countries of OECD nations are having lower Goods and Service Tax rates. Australia
collects average 7.5 per cent GDP from the sources of tax collection which is 11 per average
in case of other OCED nations.4

Source: http://www.abc.net.au/news/2015-07-30/fact-check-how-does-australia27s-gst-
compare-with-other-oec/6654430

The differences between other OECD nations and Australian GST rate structure are its model
itself. Australia has implemented single rate mechanism that is 10 per cent for all goods and
services. No discrimination exist in any case in Australia. Other OCED nations has
introduced Tax rates common for majority of goods and services and reduced rates for special
category goods. The selection of special category of goods and services depends upon the
basic necessity of the economic reforms of the nation.

Indian strategy is to implement the common rates for all goods and services which may vary
from 16% -18%.

4
Fact Check: “Do Australians pay less GST than people in other OECD nations”, 3rd Aug
2015
Source: http://www.abc.net.au/news/2015-07-30/fact-check3a-how-does-the-gst-
compare3f/6656422

Singapore:

Singapore implemented Goods and Service Tax and found it as a medium for the inflation in
prices. It becomes very easy to trace the common reason behind the game which is higher
rate of GST as compared to existed tax rates at the time of its implementation. Singapore
introduced the GST in the year 1994 and inflation rate increased with high rate in the
economy.

Malaysia:

Recently Malaysia introduced the Goods and Service Act and controlled the inflationary
effects of the same on the economy as well as price hikes. Malaysian Government effectively
controlled price changes due to introduction of GST with the help of Domestic Trade and
Consumer Affairs.

Brazil:

Brazil implements The Tax on Circulation of Goods and Services which is a state tax. It is
due on operations involving circulation of goods and on interstate as well as inter-municipal
transport and communication services. It is a non-cumulative tax and tax due may be offset
by credits arising from the purchase of raw-materials, intermediary products. Export Goods
are exempted from the scope of the Act. Rates applied to interstate business transactions are
7% to 12% depending upon the destination.

New Zealand:

It was introduced in New Zealand in the year 1986 and replaced sales tax of few goods and
services. The rate was fixed at the time of introducing the GST was only 10%, which has
been increased upto 15% in the year 2010.

Sweden:

Sweden implemented differential tax regime in the name of VAT. It splits into three levels i.e.
25%, 12%, and 6%. Most of the Goods and services comes under 25% tax regime includes
restaurant bills whereby 12% rate is applicable for the foods (brings home from restaurant)
and hotel stays (but breakfast, lunch dinner in the restaurant @ 25%), and 6% for printed
matter, cultural services and transport of private persons. Few services are exempted from the
VAT i.e. education of children, and adult in public utility, as well as health care and dental
care.

Learning steps from the world

There are nearby 40 models exist in force currently with unique features. The GST model
depends upon the economic strength of the nation. Few countries implemented GST at a
single rate whereas Indonesia has five rates as well as zero rate for nearby 30 exempted goods
and services of special category. China implemented the different GST model in which GST
is charged on the goods as well as provision of repairs, replacement and processing services.
It is only charged on goods used in the production process which means it is not applicable to
the fixed assets. Australia has the GST at a federal level which is collected by the centre and
distributed to the states. Brazil too follows the similar dual concept and divides their tax
revenue between centre and the states.

Canadian Goods and Service Tax has completely different model which focuses on the
federal tax system. It has dual arrangements between centre and state with three varies of
situation such as:
 1. Largest area of the Canada is followed PST model in which federal GST and
provisional retail sales tax are administered separately.

2. Harmonious Sates Tax implemented by joint federal and provisional VATs and
administered by federal government

3. The special arrangement for Quebec province has been done through separate federal
and provincial VAT administered provincially.

Malaysia:

Malaysia sets a good example for the proposed countries for the enough time requirements to
the business houses. It gave 1.5 years for the preparation for the tax reforms at the business
houses level. It requires tax rate changes, changes in calculations, training to the concerned
personnel in the firms, etc at the business firms. Malaysian Government faced a great
resentment from the society due to complex implementation of the reforms in tax structure.

Indian Government has given only nine months to implement the new tax system which may
be an alarming problem for the government itself.

The other learning steps for the Indian Government may be release of sector specific
guidance papers for the tax treatment in the concerned business sector. It may become the
significant guide for the smooth implementation of the Act. Indian legislative bodies have
started to work on it and issued few sector wise guidelines. The more guidance papers with
minuet details may become mode for the success of the overall reform.

Conclusion:

The author of the popular book “Restart: The Last Chance for the Indian Economy”, Mihir
Sharma found the GST as completely revolutionary, the sort of economic backroom plumbing
that changes your life without you even noticing it.5 Economic Advisor Mr. Arvind
Subramaniam observed that no country has claimed a flawless GST since its inception and
better change in complex systems is incremental.6

5
Biswas Soutik Why India’s GST is one of the World’s most complex tax reforms, BBC
News, 4th August 2016

6
Ibid
More time is required for the big giants to hold public discussions and suggestions so that it
can be implemented smoothly and successfully. Legislatively guidance papers should be
introduced by the Government in many more numbers.

Sources:

Mike Baird, 7.30, July 20, 2015

When to charge GST (and when not to), Australian Taxation Office, June 16, 2015

GST, Australian Taxation Office, June 16, 2015

John Freebairn, A larger GST in a tax-mix change, Insights, April 2013

John Daley, Balancing budgets: Tough choices we need, The Grattan Institute, November
eer2013

International comparison of Australia's taxes, Treasury, April 3, 2006

Consumption tax trends, Rates of value added tax, OECD, January 2015

Tax on goods and services, OECD, 2015

Web References:

http://www.abc.net.au/news/2015-07-30/fact-check-rate-of-gst/6650406

http://www.vatlive.com/global-vat-gst/australia/australian-gst/

https://www.taxmanagementindia.com/visitor/Article.asp?ID=26

http://www.gstindia.com/gst-lessons-from-countries-that-have-implemented-the-goods-and-
services-tax/

http://www.indiaretailing.com/2016/08/03/latest-news/gst-india-journey-and-how-other-
countries-have-implemented-it/

https://en.wikipedia.org/wiki/Goods_and_Services_Tax_Bill