The government on Monday announced the final roadmap for implementing a countrywide goods and services tax (GST) from April 1, 2010. It is one of the most comprehensive tax reforms initiatives in independent India.
“Tax reform, like all reforms, is a process and not an event. We have accelerated the process for the smooth introduction of GST with effect from April 1, 2010,” Finance Minister Pranab Mukherjee said in his budget speech.
Although the GST rate is yet to be decided, experts believe it could be around 14 per cent.
“It can pave the way for modernisation of tax administration, make it simpler and more transparent, and significantly enhance voluntary compliance,” said Satya Poddar Tax Partner, Policy Advisory Group, Ernst & Young.
The indirect tax system in India is currently mired in multi-layered taxes — such as excise duty, octroi, CST, value added tax (VAT) and service tax among others — levied by the Centre and state governments. These cause distortions in the tax regime and lead to huge leakages.
Once implemented, GST is expected to remove these distortions, as most of these taxes would be replaced by it.
About 150 countries across the world have introduced GST in one form or the other. The GST rate in various countries ranges from as low as 5 per cent in Taiwan to as high as 25 per cent in Denmark.
The implementation of GST would also require a constitutional amendment and will also require the endorsement of the state assemblies.