India makes progress on 1 April 2016 GST implementation

Thu 13th Nov 2014

Momentum has continued to gather in the drive by the new Indian government to implement a Goods & Services (GST) and replace the existing antiquated Indian VAT regime.  It is hoped that Indian GST can be launched 1 April 2016.

New developments include:

  • The Congress opposition party has agreed to back any proposed Bill to introduce the new consumption tax. It has agreed to join with the ruling BJP party to introduce new Constitution Amendment Bill legislation in the Winter sitting, starting at the end of this month
  • The States and Centre should be close to agreeing on one of the more intractable issues – the revenue-neutral rate. This dictates the split of GST, and the proposal is for the Centre to receive 11%, whilst the States take 12%
  • The States are now likely to settle for a three year compensatory period rather than the earlier demands of five. The problems of State losses partially arise from the existing Central Sales Tax, which is levied by the Centre but redistributed to the States, on the trading of goods between States within India. Many States feel aggrieved that the Centre has almost halved the rate of this tax to 2% since inception.
However, differences persist.  Notably in the GST registration threshold level.
Indian GST reform has been in the pipeline for almost 10 years.  It is hoped that a more transparent and less punitive indirect tax will help generate of 1% additional GDP growth per annum.