Indian GST system is relatively more complex, has high and larger number of tax rates, than in comparable systems in other countries-World Bank
The World Bank in its latest working paper titled as “India development update-India’s growth story ” published on 14th March, 2018 has expressed that looking back at the last 50 years, India’s average growth has accelerated slowly but steadily across sectors–agriculture, industry and services and become more stable which is reflected in increasing labor productivity and total factor productivity.
As per the report, Doing Business 2018 recognized India for being one of the top 10 improvers amongst the 190 countries that are studied annually. India is the only South Asian and BRICS country to be included in the list of top improvers.
The working paper inter alia discusses the implementation of India’s Goods and Services Tax, its design and international comparison.
The Goods and Services Tax (GST) was introduced in India on 1st July, 2017 with five different tax rates – 0, 5, 12, 18, and 28 percent. Comparing the design of India’s GST system with prevailing international similar systems, it was noted that the tax rates in the Indian GST system are among the highest in the world. The highest GST rate of 28 percent is the second highest among a sample of 115 countries which have a GST (VAT) system.
An Analysis based on Ernst & Young Worldwide VAT, GST and Sales Tax Guide and World Bank Staff Calculations (2017), shows that India has the highest standard GST rate in Asia.
| Region | Highest tax rate | Lowest tax rate |
| Europe | Hungary (27%) | Jersey, Channel Islands (5%) |
| North & Central America, Caribbean | Dominican Republic (18%) | Canada (5%) |
| Middle East and Africa | Madagascar/Morocco (20%) | Nigeria (5%) |
| Latin America | Uruguay (22%) | Paraguay (10%) |
| Oceania | New Zealand/Fiji/Samoa/Tonga (15%) | Niue (5%) |
| Asia (excl. ASEAN) | India (28%) | Taiwan-China (5%) |
| ASEAN | Philippines (12%) | Malaysia (6%) |
Also the study paper reveals that most of the countries around the World have a single rate of GST. 49 countries use a single rate, 28 use two rates, and only 5 countries including India use four rates. The countries using four or more rates of GST include Italy, Luxembourg, Pakistan and Ghana. Thus, India has among the highest number of different GST rates in the world.
Importantly, as per the study paper, in India, the threshold to register for the GST is INR 15 which is highest among the sample of 31 countries compiled by the European Commission, which includes all the EU countries and China and Malaysia.
The study reports that when comparing the design of India’s GST system to similar taxes on value added across other countries, the India’s GST system is relatively more complex, with its high tax rates and a larger number of tax rates, than in comparable systems in other countries. However, the paper points out that while teething problems on the administrative and design side persist, the introduction of the GST should be considered as the start of a process, not the end. With the economy adapting to the new system, the GST council has been evaluating and evolving the tax structure and its implementation.
As per the report, the International experience suggests that the adjustment process can affect economic activity for multiple months, the benefits of the GST are likely to outweigh its costs in the long run.
Download World Bank’s Study Paper Click Here >>
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