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India: A less taxing tax system in India

Friday, 23 August 2013   (0 Comments)
Posted by: Author: Ernst & Young
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Author: Ernst & Young

Get ready for breakthrough tax reform in India.

The country is gearing up to implement a more streamlined and transparent indirect tax system that is likely to be unveiled post-election in 2014. The proposed Goods and Service Tax (GST) will replace most of the indirect taxes currently levied on goods and services by India’s central and state governments.

"It is the single biggest tax reform that this country would ever have unveiled in recent times,” says Rajiv Memani, EY India’s Regional Managing Partner, who is also the Chairperson of the GST committee for India’s leading industry forum.

Under India’s current indirect tax system, the cascading effect of multiple taxes can be as high as 25% for businesses. The GST aims to remedy this through a two-level indirect tax structure, in which a central GST would subsume central taxes and the state-level GST would include state taxes.

Among the goals of the new regime are to "make India one common market, more competitive in exports because of less cascading, and more efficient in supply chain,” says Rajiv. He adds that typically, GST systems tend to boost a country’s GDP growth by 1 to 1.5 percentage points.

Other benefits are that it simplifies tax administration, thereby reducing (leakages) and boosts compliance.

The Central and State governments, businesses and other stakeholders are still debating the new tax – fiscal autonomy is among the hot buttons – in the federal structure and it is unlikely to take effect until after the country’s general elections in mid-2014.

Yet there’s no question that GST implementation would present "significant opportunities for business and industry,” says Rajiv. The GST committee is working closely with Indian government, trade and industry leaders to address various stakeholders’ concerns and to work toward an effective rollout.

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