India compromises on Goods & Services Tax (GST) rates for implementation

Tue 14th May 2013

A further major compromise around the local, State rates on Indian Goods & Services Tax (GST) means the implementation of the reformed consumption tax is very close.  GST will replace Indian VAT, Service Tax, CENVAT, Excise Duty and a range of related transactions taxes.

The central government agreed to allow local states to charge a variable GST rate on their share of the new GST.  The central state will then charge a fixed amount on top.  This is similar to the Canadian GST rate model.

The state tax rate range will be between 10% and 15%.  It is not yet clear what the central rate will be – potentially up to 4%.  This could mean a maximum GST rate in some instances of 19%.  This is above the 16% Indian GST rate previously agreed.  The average GST rate in the region is 10%; the average European VAT rate is 21%.  Read more about Indian VAT reform here.

A public announcement on the above is expected this week.

The overhaul of the Indian VAT system is seen as vital to help improve the market efficiency and global competitiveness of India.  China VAT is being overhauled at the moment, with a roll out of a Chinese VAT pilot across the whole country starting in August 2013.

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