India new potential delays to GST implementation

Mon 21st Apr 2014

As the 2014 general elections get into full swing, the hoped break through on the replacement of Indian Value Added Tax with a modern Goods & Services Tax (GST) took a set-back. This comes despite hopes that the Indian election would bring a speedy GST implementation.

Indian states bicker on revenues split

The latest meeting this month of the Empowered Committee of State Finance Ministers brought up old discussions about the exclusion of certain goods. In particular: petrol; alcohol; and entry tax. The 28 states fear that the imposition of a single GST on all goods and services will rob them of their current Indian VAT take on these goods. However, excluding any goods could potentially break the important improvements that Indian GST reform could bring.

As the Indian economy continues to slow faster than many of its emerging market competitors, many saw the replacement of VAT with GST as a sure fire way to boost GDP – perhaps by over 1% per annum. This is because the existing Indian VAT regime leads to heavy taxation, with limited scope for recovery of input VAT, and many cases of double taxation where goods pass from across state lines.