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GST impact: What India can learn from countries with GST implementation like France, Malaysia, Singapore, China

May 29, 2017

Globally, several countries have experimented and implemented the Goods and Services Tax (GST) and it has the same concept everywhere. Prices are bound to change after the GST implementation gains momentum from July 1, 2017. As the first step the Government of India has released the tax slabs for the various goods (no major surprises for most products). Though it is still early to comment on the overall effect of the new tax law, India can certainly learn a lot from how other countries have done GST rollout and what the GST impact has been in those countries.

Importance of GST for developing countries including India

France has been the first nation to implement GST in order to reduce tax evasion. After that, over 140 countries have gone for GST implementation with some nations even going in for dual GST (for example, Brazil, Canada, etc.) model. India has the Canadian model of GST.

Countries like Singapore and New Zealand tax everything at a flat rate. On the other hand, Indonesia implements five positive rates, a zero rate, and more than 30 categories for exemptions. In China, GST applies only to goods as well as the provision of repairs, processing, and replacement services. The GST can only be recoverable on goods used in production and the GST tax on fixed assets cannot be recovered. In Australia, GST tax is federal, which is collected by the Center as well as distributed to States.

A main aspect of GST bill implementation has been the rate. Canada reduced the rate of GST levy a couple of times after implementation. There were other countries that were forced to increase it. In Asia, countries such as Malaysia and Singapore have adopted the GST tax structure. Plus, there could an inflationary effect on prices, particularly if the rate is higher than used to be levied earlier. For example, Singapore witnessed an upward trend in inflation (1994) when it implemented the GST. Malaysia adequately coped up with GST implementation.

GST to boost economy and GDP growth?

Considered as the most extensive taxation reform after Independence, the new tax law is set to see the light of day soon. Experts say the GST would boost the GDP growth by around 2% and also check tax evasion. India’s Finance Minister Arun Jaitley has assured that the GST Council is working on consensus and gradually all items would come within the purview of this new indirect tax regime, which is expected to ensure a free flow of goods and services throughout India.

This article was first published on LinkedIn by Muqbil Ahmar

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