The goods and services tax (GST) implemented by the Narendra Modi government from 1 July 2017 is one of the most complex with the second highest tax rate in the world among a sample of 115 countries which have a similar indirect tax system, the World Bank said in a report.
Structure of India's GST:
GST Stands for Goods and service tax.It is Indirect tax.
- India’s GST structure has five tax slabs of 0, 5%, 12%, 18%, and 28%.
- There are several exempted sales and exports are zero rated, which allows exporters to claim refund for taxes paid on inputs.
- Separately, gold is taxed at 3% rate, precious stones at 0.25%, while alcohol, petroleum products, stamp duties on real estate and electricity duties are excluded from the GST and continue to be taxed by the state governments at state-specific rates.
World scenario of GST:
As many as 49 countries around the world have a single slab of GST, while 28 countries use two slabs, and only five countries, including India, use four non-zero slabs.
The countries that use four or more slabs of GST include Italy, Luxembourg, Pakistan and Ghana. Thus, India has among the highest number of different GST slabs in the world.
World bank's stand:
- The World Bank, in its bi-annual India Development Update released on14th March 2018 the introduction of GST has been accompanied by state administrations experiencing disruptions in initial days after GST’s introduction.
This included lack of clarity on discontinuation of local taxes, for example, in Tamil Nadu where the state government devolved an entertainment tax to local governments in order to impose it over and above a 28% GST.
To preserve revenue collections, Maharashtra has also increased motor vehicles tax to compensate for losses due to GST.
- Increased administrative tax compliance burden on firms and a locking-up of working capital due to slow tax refund processing
- “High compliance costs are also arising because the prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate.
- International experience suggests that the adjustment process can affect economic activity for multiple months, the benefits of the GST are likely to outweigh its costs in the long run.