India GST progress

Mon 1st Aug 2016

Further progress has been made in India on the negotiations around the last contentious issues blocking the new Goods & Services Tax (‘GST’). It is anticipated that the new tax will be finally approved this week after 16 years of discussion.

The implementation bill will be presented to Parliament (Rajya Sabha) this week (Wednesday) and is likely to be approved after years of delay.  The governing BJP party has already made concessions: dropping an additional 1% rate element in the new tax rate; and a state compensation mechanism.  The opposition Congress party is clear that it still wants an 18% cap on the countrywide GST rate before it will back the bill. Three quarters of the Parliament must approve bill for it to pass.  If passed in this Parliamentary sitting, the new tax could role out at the end of 2017 or early 2018.

GST will replace a wide range of national and state-level consumption taxes, including: CENVAT; VAT; and Services Tax. Many of these overlap, resulting in compounding taxation on the internal movement of goods within the country – which undermines the states’ ambition to rival China as a manufacturing centre.  The current taxes also impose a huge bureaucratic burden on businesses.  It has been estimated that GST benefits could add up to 2% to India’s GDP.