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Patrick Walker,
Head-Indirect Tax, PwC UK shares his comments on GST:
What I have been asked to
do here today is to give you some insights based on
working with territories that have had GST in place for
many years and also working in some territories to
actually implement GST. But I wanted to first of all
share with you an insight that I had over the last
couple of days is that this is my first ever visit to
India and it has been fascinating experience. An insight
that came to me was that the term to describe India as
an emerging economy really doesn’t do it justice. We see
what Dr. Rajan has said in his key note in his key
economic speech, we have a country here with some
significant global corporations, we have a country here
with a significant economy and we have a country that is
growing or aspiring to grow at a rated 9-10-11-12% and
you compare that with some of the established economies
which are aspiring to grow 1%-2%-3%, so my insight is
that you should describe India as an overtaking economy,
not an emerging economy.
That insight came to me
when I was in a Taxi in Mumbai and the driver took the
term overtaking right through his driving technique, so
that was how it came to me but I think that is very
appropriate. So What I want to do is just cover three
things, give you some reflections on how GST has been
implemented in other territories, try and pickup some of
the learning experience from the implementation process
and then give you some messages about opportunity
because its easy to think about the implementation of
GST as a challenge as something to go through but really
there are significant opportunities to seize if you know
where to look and you know how to go about it and by
drawing about experiences of other territories you can
really go ahead of them here .
So, India is implementing
a dual GST system, now GST as much as tax can be
described as popular, GST is a very popular tax, its now
in place in over 150 countries worldwide, but if you
look around the world, not many countries have gone for
a dual GST system. GST is popular with tax authorities
because it has relatively low collection costs,
relatively easy to administer, the reason for that is
that most of the costs of collection rest with the
businesses and not with the tax authorities, but its
also relatively easy to predict in terms of revenue
experience, if you look at the impact of the global
financial crisis across the world for the last year or
so, business profitability is down and so corporate tax
revenues have gone down, asset prices have declined and
so capital gains taxes have declined, so the advantage
of a GST is that a consistent, predictable revenue
stream and that is why its popular and yet only two
other countries have gone for a dual GST model. Of the
major nations, Brazil and Canada are the ones that
spring to mind. Canada has got a smaller number of
provinces or states than India and it has got a lower
combined GST rate around 13% compared with your 16%, one
of the interesting things going for a dual model, you do
away with some of the simplicities of administration,
you have got two taxation authorities administering the
tax in two different areas so it puts compliance costs
up. Canada has actually addressed this by gradually
moving so although they have a dual GST system in three
of the provinces now moving to five in 2010, they will
have the federal authority administer even the local
provincial GST as well and that is one way of
simplifying the administration. I have to say that when
Canada implemented GST, they said this was the temporary
process the dual GST system, they are going to be
evolved to a single harmonized GST, nearly 20 years
later they haven’t achieved that. So I don’t know about
any comments being made in India about eventually moving
it but I think that will be some time.
Brazil I have to skip
over I have to say its not a highly regarded market to
GST terms, a very complex system, multiple rates and
very weak tax administration both at state and central
levels and therefore if you have to look for inspiration
and guidance I would certainly not be looking at Brazil
as my model.
I could have drawn on two
particular territories, back down I was brought up UK
and I started my career on GST in the UK and then I have
worked in Australia. The UK implemented GST in 1973 and
however old I may look, I was actually only ten at that
time, so its very difficult for me to give some insights
in the UK implementation experience. Australia
implemented in July 2000 so I think that is more
relevant to give you some insights the way the
Australian’s have implemented it. Australia is a
similarly huge country geographically to India but as my
taxi driver pointed out to me yesterday the total
population of Australia is only just around the same as
Mumbai that is about 20 million, so a big geographical
expanse, many states but a relatively small population.
What Australia did is that they have implemented a
system where the revenue does go to the states because
it replaces the number of indirect taxes that were state
leveled but its administered and collected by one single
authority in the Australian tax office and that’s better
further consistency, it reduces compliance costs and
reduces complexities.
Source :
Moneycontrol.com,
India,
dated
14/11/2009
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