India Considering Broad-Ranging Changes to Domestic Tax Regime
The lower house of the Indian Parliament began discussions Dec. 19 on a new bill that, if approved, would represent a very substantial change to tax law in India. According to BMR Advisors, a professional services firm offering a range of tax, mergers and acquisition and risk advisory services in both India and internationally, the bill proposes a complete revamping of current tax law in the subcontinent that has been in place for decades. Commonly referred to as the Goods and Services Tax, the legislation takes aim at the separation of power and revenue acquisition that currently exists between the central and state governments in India.
BMR Advisors indicates that presently the central government “imposes excise duty on manufacture of goods, and service tax on provision of services (other than customs duty on imports)” while the states “separately impose Value Added Tax (VAT) on the supply of goods and a portfolio of specific taxes.” This results in separate power and revenue structures, complicating cooperation and the overall relationship between various governing bodies.
Under the unified GST structure the central and state governments would be allowed to concurrently impose GST on the supply of goods and services within a state. In the case of goods and services supplied by one state to another, an Integrated Goods and Services Tax would be assessed by the central government. According to BMR Advisors, imports into India would be treated much like an inter-state transaction and should attract IGST. However, the treatment of exports remains unclear at this time. Guidelines would be developed to determine whether a particular transaction constitutes an inter-state transaction for IGST to apply and tax revenues would be shared between the central and state governments in accordance with the recommendations of a GST Council that would include both central and state government officials.
Products such as tobacco and medicinal and toilet preparations would be subject to the new system immediately, while petroleum products would be incorporated at a later date and alcoholic products for human consumption would remain under the purview of the states. BMR Advisors adds that the legislation also seeks to eliminate the entry tax imposed by various states when goods enter their jurisdiction for consumption or sale.
According to BMR Advisors, to enter into force the legislation would have to be approved by both the lower and upper chambers of parliament and ratified by at least half of the states. For a detailed breakdown of the bill and updates as the legislation progresses through the Indian parliament, click here to visit the BMR Advisors Web site.