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Indian parliament passes bill to introduce biggest indirect tax reform

From an overabundance of state and federal levies to a single tax

TAX ALERT  | 

On Aug. 3, 2016, the Indian parliament passed into law the goods and services tax (GST)—the biggest indirect tax reform for the country. After years of filibustering between the ruling and opposition parties, the GST was introduced to replace a plethora of central and state indirect taxes, surcharges and levies to create one single tax. This is popularly referred to as the concept of ‘one nation, one tax.’

The GST is expected to ease a cumbersome tax system, reduce cost of goods and services, help goods move seamlessly across state borders, curb tax evasion, improve compliance, raise revenues and boost India’s economic growth by up to 2 percent. To facilitate revenue sharing between the central government and state governments, the GST will have two components:

  1. Central GST
  2. State GST

The states will have to pass further laws to determine the rate and scope of the tax.

The new GST subsumes central levies including excise duty, service tax and cesses pertaining to a supply of goods and services. It also replaces state levies including state value added tax, central sales tax, and state cesses and surcharges. Alcohol and petroleum-related products are currently outside the GST regime. The complex tax reform is expected to be managed by state-of-the-art technology under which a huge electronic infrastructure would enable taxpayers to comply with what are anticipated to be filing requirements.

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