Comparing India's Goods and Services Tax with International Regimes
The article delves into how India's GST model stands in contrast to Value Added Tax (VAT) and Goods and Services Tax (GST) systems implemented across various global economies. It highlights India's dual GST structure and variations in tax rates, exemption thresholds, and compliance mechanisms compared to countries like Canada, the UK, Singapore, Australia, and the USA. This comparison offers insights into the unique aspects and challenges of the Indian tax regime within a global context.
The introduction of the Goods and Services Tax (GST) in India revolutionized the country's indirect taxation system, aiming for a unified 'One Nation, One Tax' framework. This reform sought to consolidate various indirect levies, enhance tax collection efficiency, combat corruption, and streamline inter-state commerce, thereby bolstering India's global economic competitiveness. While France pioneered GST to curb tax evasion, over 160 nations have since adopted similar consumption-based tax models, either as GST or Value Added Tax (VAT). Notable examples of countries with a dual-GST structure include Brazil, Canada, and India.
Comparing India's GST Framework with Global Tax Models
| Particulars | India | Canada | UK | Singapore |
|---|---|---|---|---|
| Tax System Name | Goods and Service Tax | Federal Goods and Service Tax & Harmonized Sales Tax | Value Added Tax | Goods and Service Tax |
| Standard Rates | 0% (for essential foods), 5%, 12%, 18%, 28% (+cess on luxury items) | GST 5%; HST ranges from 0% to 15% | 20%; Reduced rates: 5%, exempt, zero-rated | 7%; Reduced rates: Zero-rated, exempt |
| Exemption Threshold | Rs.40 lakh or Rs.20 lakh, depending on the state and supply | Canadian $30,000 | £85,000 | Singapore $1 million |
| Liability Basis | Accrual basis: Invoice issue OR payment receipt (whichever is earlier) | Accrual basis: Invoice issue date OR payment receipt date (whichever is earlier) | Accrual basis: Invoice, payment, OR supply (earliest); Cash basis (turnover up to £1.35mn): Payment | Accrual basis: Invoice issue, payment receipt, OR supply (earliest); Cash basis (turnover up to SGD$1mn): Payment |
| Returns and Payments | Monthly or quarterly, and 1 annual return (based on turnover) | Monthly, quarterly, or annually (based on turnover) | Typically quarterly; small businesses may file annually | Typically quarterly; businesses may opt for monthly returns |
| Reverse Charge Mechanism | Applicable to both goods and services | Applies to imported services and intangible properties | Applicable | Applies to the supply of services |
| Exempted Supplies | Land and completed buildings sales, specific healthcare, educational services, essential food items | Real estate, financial services, residential rent, charities, health, education | Medical, education, finance, insurance, postal services | Real estate, financial services, residential rental |
International GST/VAT Models
GST in Australia
Australia's Goods and Services Tax, introduced in 2000, is a federal tax managed by the Australian Tax Office and subsequently distributed among the states. The current rate stands at 10%. Certain domestic consumption items, such as fresh food, health services, and education, are zero-rated. Government fees and charges are also exempt, given their nature as taxes.
VAT in Brazil
Brazil operates a dual Value Added Tax (VAT) system, encompassing both federal and state-level levies. Additionally, various other indirect taxes are imposed on the supply of goods and services. Similar to India, Brazil's indirect tax system features multiple tax slabs.
VAT in China
China implemented its VAT system in 1984, with a standard rate of 13%. Reduced rates of 9% and 6% are applied to specific categories of goods.
VAT in Indonesia
Indonesia's VAT, introduced in 1985, is administered by the Directorate General of Taxation under the Ministry of Finance. The standard rate is currently 11%, with plans to increase it to 12%. Basic commodities are exempted from VAT.
VAT in France
In France, VAT is collected on products or services at each stage of production or marketing and is ultimately borne by the final consumer. The VAT rates include slabs of 20%, 10%, 5.5%, and 2.1%. The 20% rate serves as the standard, applicable to most goods.
GST in New Zealand
New Zealand's GST, established in 1986, has seen rate adjustments over time. Initially 10%, it increased to 12.5% from July 1989 to September 2010. It is presently levied at 15%. GST accounts for 31.4% of the nation's total taxation, positioning New Zealand as the OECD country with the highest sales tax proportion relative to GDP.
VAT in the United Kingdom
The UK introduced VAT in 1973, replacing the earlier Purchase Tax. Since January 2011, the standard VAT rate has been 20%, though some goods and services qualify for reduced rates of 5% or 0%, while others are entirely exempt.
Sales Tax in the USA
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The United States does not impose a federal Value Added Tax on goods and services. Instead, sales tax is regulated at the state level. Forty-five states, alongside the District of Columbia and territories like Puerto Rico and Guam, have enacted general sales taxes applicable to the sale or lease of many goods and some services. State governments can also empower local authorities to levy additional general or selective sales taxes. As of 2017, five states—Alaska, Delaware, Oregon, Montana, and New Hampshire—do not impose a statewide sales tax. California levies the highest base sales tax rate at 7.25%.
A notable distinction from India is that many other countries set significantly higher thresholds for GST applicability, which generally lessens the tax burden on small and medium-sized enterprises (SMEs). This difference presents unique challenges for India's SME sector.
An edited version of this article has been published in Business Insider.