GST and Doing Business in India

Sacchidananda Mukherjee, PhD, Associate Professor, National Institute of Public Finance and Policy, New Delhi

A version of this article was originally published in Chinese as ‘商品和服务税对在印经商的影响’ [Shangpin he fuwu shui (GST) dui Yin jingshang de yingxiang], Diyi Caijing, 15 May 2015. This is part of a series by Indian scholars in China’s top business affairs news portal facilitated by the ICS. The English version follows below the Chinese text.

在经历漫长的等待之后,印度终将于2017年7月1日起推出商品和服务税(GST),实现统一税制。在四项法案(Central GST、Integrated GST、Union Territory GST、GST Compensation to States)通过印度两院批准后,将会形成GST征税行政框架以及执行规则。

预计GST改革委员会将于2017年5月为各商品指定税率。不同社会经济阶层所需承担的不同税负在很大程度上取决于细致划分下不同税率的商品与服务。目前,委员会已确定了四层税率结构(5%、12%、18%和28%),预计委员会还将公布一份简短的,包含了部分基础商品及服务的豁免清单。而对于低质货物(如烟草制品、汽水)及对环境有害的物质(如煤炭),除了征收最高税率外,还有征收额外的GST补偿税。由补偿税组成的税收收入将用于补偿邦政府在新税制实施头5年面临的税收损失。此外,委员会还明确了针对不同类别商品设定的相应的最高GST补偿税率,如对槟榔、豪车分别征收135%、15%的税,对每吨煤征收400卢比。不过具体到各不同商品的GST补偿税尚未明确。因进项税可抵免GST补偿税,因此不会产生针对补偿税的阶梯税率。

印度共同市场的出现基于各邦对同一个商品所征税率的统一。任何一个邦政府征收的税率有任何不同都将对在印度开展业务的企业带来更高的合规负担。从商业角度来看,统一的规则与税率更为有利。

印度GST法案设计与管理的多样性使其独一无二。这将是一个同时覆盖了商品及服务的多级综合增值税(VAT)。鉴于印度的联邦结构,以及税收权力掌握在不同政府手中这一事实,GST的推出将是一项重大的间接税改革,中央政府及邦政府都将在生产和分销的各个环节获得增值税征税权。引入GST将带来众多好处,包括大幅减少了阶梯税率(消除了商品与服务、制造与分销/贸易在定义上的不同)、大幅减少了跨邦贸易交易费用。此外,各邦税收规则与监管的统一,以及统一的线上缴税系统将减少在印经商企业的交易成本。

印度目前的商品税收制度属于原产地税收制度,即生产地(原产地/出口地)对于跨邦出售的商品征收中央销售税(CST)。既然是原产地收税,目的地(进口地)不可对中央销售税进行进项税抵免。根据经营情况,邦与邦之间采购还牵扯入境税,部分邦政府允许对进口商品入境税实行进项税收抵免。而对于部分不允许进项税抵免的邦政府,入境税将依旧是其固定成本。因此,取消跨邦贸易的中央销售税及入境税将使得印度从基于原产地的税收制度转变为基于目的地的税收制度。

此外,综合消费税(IGST)框架下,税收额或抵免额都十分明晰,使进项税抵扣链条得以传递下去,从而促进企业在各邦进行无缝交易。GST制度将为印度各区域的企业提供统一的印度市场,鼓励改善效率,实现生产专业化、商品与服务分销专业化。

在当前的间接税制下,一些行业比起其他行业面临着更高的税负。例如,制造业受到来自中央以及邦政府双重征税,而服务业仅被征一次税。一些邦政府经常选择性地对农产品征税。因此,目前的间接税制不仅导致了中央与邦政府不平等的税基,同时通过对商品、服务征收不同的税收来扭曲消费者的选择。GST实施后,制造品的有效税率将被下调,而服务相关税率则会上升。除了基本关税外,进口商品还将被征收综合消费税,但如果进口商品作为有待进一步增值的原材料时将允许获得进项税抵免。所有的出口征收0税率。这些规定将有助于在印度开展业务,并使印度的出口在全球市场上具有竞争力。

GST能否在统一税率、收入汲取上获得成功还有赖于税务管理的现代化、便捷化程度、对税收发票采取的激励措施、通过简化规则条例促进自愿交税、对纳税人履行义务的规定、各权力机关税收的协调及信息的自动共享。

The long wait for a harmonized indirect tax system in India will soon be over with the introduction of Goods and Services Tax (GST) from 1 July 2017. After the passage of four GST Bills (Central GST, Integrated GST, Union Territory GST and GST Compensation to States) by both the houses of the Indian Parliament, the GST rules and regulations will be framed and notified. The last piece of legislation related to GST, i.e., State GST Bill, needs to be passed in the legislatures of the States and Union Territories too.

It is expected that a GST Council will assign tax rates for commodities in May 2017. Distributional aspects of tax burden across different socio-economic strata will largely depend on careful fitment of commodities and services under different tax rates. As already decided by the Council there will be four different GST rates (5%, 12%, 18% and 28%) and it is expected that the Council will come out with a short list of exemption comprising some essential goods and services. There will be additional GST compensation cess over and above the highest GST rate on some demerit goods (e.g., tobacco products, aerated drinks) and environmentally harmful goods (e.g., coal). The proceeds of the cess will be used to compensate States for any revenue loss on account of introduction of the GST during first five years. The Council has also decided on the highest rate of GST compensation cess for different categories of commodities, e.g., 135% for paan masala (槟榔), 15% for luxury cars, Rs.400 per tonne of coal. However, the actual rate for GST compensation cess for different commodities is yet to be decided. Due input tax credit will be provided against the GST compensation cess and there will be no cascading of taxes on account of the cess.

The emergence of common market in India will be contingent upon harmonization of GST rate across States for a specific commodity. Any deviation from the common rate by any state may lead to higher compliance burden for businesses having pan India operation. Harmonization in rules and regulation as well as GST rate is desirable from a business point of view.

Given the diversity involved in design and administration, an Indian GST will be unique. It would be a multistage comprehensive value added tax (VAT) encompassing both goods and services. Given the federal structure of India and the fact that taxation powers have been constitutionally assigned to different governments, the introduction of GST would be a major indirect tax reform, as both the Centre (the Union Government) and State Governments will get rights to tax goods as well services at every stage of value addition in production and distribution. Major benefits of GST would be substantial reduction of cascading of taxes (due to removal of definitional differences between goods and services and that of manufacturing and distribution/ trade) and transaction costs associated with inter-State movements of goods. Moreover harmonization of tax rules and regulation across States and uniform online system of tax compliance will reduce transaction costs associated with doing business in India.

The present system of taxation of goods can best be described as an origin-based tax system where the manufacturing (origin or exporting) State collects Central Sales Tax (CST) on goods being sold inter-State. Since it is a tax collected by the State of origin, the destination (importing) State does not allow input tax credit against CST. Therefore, CST remains a stranded cost for inter-State dealers and manufacturers using goods procured from other States. Depending on the State of operation, inter-State purchases also attract entry tax and some States allow input tax credit against the entry tax for inputs. Entry tax remains a stranded cost for those States where input tax credits are not allowed. Therefore, the removal of CST and entry tax from inter-State movements of goods will transform Indian indirect taxation system from origin-based to destination-based system.

Moreover in the GST regime, seamless movement of GST credits under the Integrated GST (IGST) framework will allow continuation of input tax credit chain and therefore, facilitate businesses carrying out seamless transactions across States. The GST regime will provide a pan-India market for businesses located in any part of India and encourage efficiency improvement and achieving specialization in production and distribution of goods as well as services.

In the present indirect taxation system, some sectors are taxed more than others. For example, manufacturing is taxed by both Centre and State Governments whereas services are taxed once. Some states tax agricultural produces and often, selectively. Therefore, the present indirect taxation system not only provides unequal tax base between Centre and State governments but also distorts consumer choice by differential taxation of goods and services. In the GST regime, it is expected that effective tax rate for manufacturing goods will go down while it will go up marginally for services. Imports will attract Integrated GST (IGST) in addition to Basic Customs Duty / Tariff but if imports are used as inputs for further value addition due input tax credit will be allowed. All exports will be zero rated. These provisions will facilitate ease of doing business in India and make Indian exports competitive in the global market.

The success of the GST system in terms of tax compliance and revenue mobilization will also depend on modernization and simplifications of tax administration, provision of incentives for tax invoice-based transactions, facilitating voluntary compliance by simplifications of rules and regulations, provisions of tax payers’ services, and tax coordination and automatic exchange of information across tax jurisdictions.

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