Goods and Services Tax in India Taking Stock and Setting Expectations

The spread of Value Added Tax (VAT) or Goods and Services Tax (GST) system of Indirect taxes across the globe is showing an increasing trend with more than 160 countries, including 33 of the 34 member countries of Organization for Economic Co-operation and Development (OECD), employing VAT as the preferred form of consumption tax1 (refer Graph 1 below). Malaysia is the recent country to implement GST effective 1 April 2015 and current Indian government has announced a timeline to introduce GST in India by 1 April 2016. Countries introduced VAT/GST for different reasons depending on their existing tax system and in case of European Union (EU) to replace turnover taxes on account of the ease of handling cross border-transactions, facilitating development of common market and reducing trade and economic distortions. Another reason of countries adopting VAT/GST was to increase revenue from general consumption to cut down rate of income taxes. Revenue neutral approach was another reason (Norway, New Zealand etc.). Other counties moved to VAT/GST to consolidate and modernize existing tax structure comprising of multiple sales tax at different rates.