Briefly Understanding GST
The Goods & Services Act was a landmark reform in Indian taxation history. It was introduced in 2017 after years of contemplation over the indirect taxation system in the country. The main aim of the government was to eradicate the complex indirect taxation system that prevailed earlier and replace it with a comprehensive indirect taxation method that promoted entrepreneurship and helped to increase the tax revenue for the government.
Let’s delve deeper into what is GST and which other countries have adopted this framework over the years. The Goods and Services Tax was introduced as an umbrella framework for all the indirect taxes on the lines of “one tax for one nation”. It is a multi-stage destination-based taxation reform that levies indirect taxes on the supply of goods and services in the country.
GST was an important reform required to give a push to the manufacturing sector in India by removing the cascading effect of taxes. The aim was to reduce the final price of goods and services charged from consumers and induce them to buy more from local manufacturers.
Comparing GST in India With Other Nations
GST is not indigenous to the Indian taxation system and has prevailed for decades before it was implemented in India. France was the first country to introduce the Goods and Services Tax in the year 1954. Eventually, more than 150 countries adopted this indirect taxation system in some form or the other. Countries like Spain, UK, Brazil, Canada, Italy, South Korea and many others have adopted this indirect taxation system over the years.
The applicability and mechanism vary from country to country. One of the major benefits of this taxation system is that it removes the cascading effect on tax which is tax paid on the tax amount included in the price of goods and services. The Input Tax Credit mechanism present in GST is for the ultimate benefit of the consumers. Nations like Canada and Brazil have a unique GST framework that is known as the Dual-GST model. India has adopted a similar framework for its indirect taxation system.
In a unified GST structure, the federal or the central government is responsible for the collection of taxes and distribution of the tax collected to the respective state governments. However, in the dual GST mechanism, a state tax is also applicable in addition to the federal tax charged on goods and services. In India, there are three nodes to the entire GST umbrella; the State GST (SGST), the Central GST (CGST), the Integrated GST (IGST).
The GST rates in India are divided under five tax slab rates that cover more than 1300 goods and 500 services. The tax rates applicable to goods and services are in the range of 0 to 28 per cent. Approximately 60% of goods fall between 12 to 28 per cent slab. There is a special tax slab for goods under precious and semi-precious stones category like gold for which charges are in the range of 0.25% to 3%.
The mandatory GST registration limit in India stands at Rs. 40 lakhs for normal businesses and Rs. 20 Lakhs for some special states based businesses. Two monthly and one annual return has to be filed by businesses registered under GST in India. Let’s compare the Indian GST framework with some other prominent nations to get some deeper insights.
Comparing with Canada
The GST system in Canada is named as Federal GST & Harmonised Sales Tax (HST). The standard rate for federal GST is at 5%, and the HST differs in the range of 0-15%. The threshold limit for mandatory GST registrations in Canada stands at $30,000. Returns can be filed on a monthly, quarterly or annual basis depending on the turnover amount.
Comparing with the UK
The GST system in the UK is called the Value Added Tax. There are primarily three tax slabs to cover various goods and services under GST in the UK, the tax slabs are in the range of 0 to 20%. The threshold limit for mandatory GST registrations in the UK is at 73,000 pounds. Returns are filed quarterly for normal businesses; small businesses can even file annual GST returns.
Comparing with Singapore
In Singapore, the Goods and Services tax goes with the generic nomenclature ‘GST’. GST was introduced in this country way back in 1994 with a single tax rate of 3%. It eventually changed after the year 2007 and increased to a standard rate of 7% with some exemptions. The threshold limit for mandatory GST registrations in Singapore stands at $1 million. The GST returns are usually filed every quarter, but businesses can also opt for a monthly basis.
Comparing with France
France was the first country to introduce the indirect taxation system called GST in 1954. It started with four tax slab rates varying in the range of 2% to 20%. The standard GST rate levied on the majority of goods sold in France stands at 20%.