Where does India’s GST tax regime stand against other prominent tax structures?

Since its inception on July 1, 2017, the Goods and Services Tax (GST) regime has garnered a diverse response in the country even as the tax structure continues to undergo a sea-change.

The government said it was committed towards removing 28 per cent, 18 per cent and 12 per cent tax slab, leaving behind 0 per cent and 5 per cent in addition to a standard rate, which will apply to luxury and sin goods. However, he mentioned that the process would take a long time to complete.

In the current model of GST, there are about 28 items (broadly categorised) under the 28 per cent tax bracket, including cement and automobile parts two key sectoral pillars. In contrast, there are many countries where a single tax rate of 7 per cent is applicable on supply of goods and services.

There are now 160 countries where GST is in process. In Asia, 19 countries have an operational GST while Europe holds as many as 53 countries where GST is levied. In Africa, also, there are over 44 countries where GST structure is ensued.

India

India’s 28 per cent GST rate is the highest among all other countries. The GST Council, the governing body of the regime, is currently focusing on strategies to refine existing tax structure. India, like many other countries, applies the dual structure providing both the Centre and the state to distribute tax from sale of a product or good.

As of now, India has five tax slabs: 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent.

CGST is consolidated by the central government while states maintain SGST. Meanwhile, IGST is levied by the Centre for all inter-state supplies of goods and/or services. This will be in use in case of both import and export.

Here are some of the notable countries where GST structure is followed:
Canada

India is striving to achieve Canada’s GST model : A 5 per cent tax on supply of either goods or services. In comparison to India’s sin tax (currently at 28 per cent), a Harmonised Sales Tax (HST) is collected in Canada on certain products in addition to GST. Canada, like India, supports a dual-GST regime.

United Kingdom

Since 2011, United Kingdom’s consistent VAT levied on goods and services was raised to 20 per cent one of the reasons which makes London one of the most expensive cities in the world. In such a scenario, citizens were left with no alternative but to pay a 20 per cent uniform tax rate on all commodities and services. In comparison, India’s many tax brackets have supported in better tax categorisation of products.

France

France’s VAT structure consists of four rates, keeping it similar to the Indian GST tax model. Since it became the first country to implement it in 1954, France has religiously adhered to four tax rates: 2.1 per cent, 5.5 per cent, 10 per cent and 20 per cent.

Having numerous tax structures allows more breathing space in terms of article categorisation. However, many economists believe that any tax rate above 18 per cent is irrational in nature.

Australia and New Zealand

Out of 160 countries that have executed GST, many countries are still inferring out ways to streamline the tax structure, but not Australia and New Zealand.

While Australia, since introducing GST in 2000, has continued the rate unchanged at 10 per cent, New Zealand in 2010 increased it from 10 per cent to 15 per cent the first change since its implementation in 1986.

However, this single tax structure can lead to vital problems in case of radical global change. However, single rate taxation would be complex to implement in India due to numerous factors like wealth gap.

Singapore

In Singapore, GST was started in 1994 at a uniform rate of 3 per cent. However, it was raised by a percentile almost a decade later in 2003 and was increased to 5 per cent by 2004. It was again raised to 7 per cent in 2007. The country has had a shaky run with the GST as inflation trajectory spiked.

China

The standard rate of VAT in China is set at 17 per cent, which is considered ideal by many economists within the country and across borders. Eliminating its precursor, Business tax system, has encouraged the nation cope efficiently with its real estate woes.

Fun fact

United States, the largest economy in the world, does not have a GST structure in place. Sales tax is still the principal source of revenue for states. The US does not have any concept of VAT as yet