India VAT GST implementation update |
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17 October 2011 India currently operates one of the most complex consumption tax regimes in the world. Its VAT (Value Added Tax) system is largely uncoordinated between the many taxing States and national Central (Federal) tax authority, which results in heavy bureaucratic burdens for companies and significant cash flow losses.
Presently, local States levy VAT. The Central tax office raises the following indirect taxes: Central Sales Tax on cross State transactions; Service Tax on the provision of services; and Central VAT on the supply goods. Click here to read about the Indian GST / VAT system. The principle complication is taxation on inter-State transactions. Many jurisdictions do no provide for relief on cross-State business, which can lead to double taxation or inability to achieve a full refund of input VAT.
For some years, there have been plans to overhaul the VAT system with a new GST (Goods and Sales Tax) regime. Below is a summary of the principle proposed changes: - A dual State (SGST) and Central tax (CGST) regime on both the provision of goods and services - Exemption and reduced GST rates on economically or socially sensitive goods – such as foodstuffs - Full right to deduct input GST tax suffered
During the transition from VAT to GST, there will be a sliding scale of tax rates to smooth the change over and ensure States do not lose out. The aim is to move from a combined VAT rate of about 12% to a new combined GST rate of 16% - evenly split between the State and Federal bodies.
The original proposal was to implement the new tax system by 2010. However, there have been severe delays – mainly due to discussions around potential revenue losses by the States. The current plan is to introduce the new regime in the tax year 2012-13.
Please click here if you would like to talk to our professionals in Delhi or Mumbai about the new tax proposals – or if you would like to discuss your wider company compliance and expansion plans into India. The TMF Group provides globalizing companies with a range of company formation and on-going accounting compliance support, helping clients stay focused on their core business.
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