International Experience With GST

GST is a very popular tax, its now in place in over 150 countries worldwide, but if we 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.

International experience shows that the success of a GST depends mostly on the model and effective implementation. Over time, many countries have fine-tuned their framework to reap the benefits of GST in terms of growth, revenues, and price stability. France was one of the first countries to implement GST on 1954, followed by Germany in 1968 and the United Kingdom in 1973. Canada and Brazil have dual GST like India proposed GST. GST has made these economies more competitive, help improve exports, generate more revenues to the exchequer and stabilise prices. Malaysia is among the recent countries in Asia to introduce GST and China is working towards a uniform system of taxes. Australia implemented GST in 2000 and has experienced positive outcomes in case of tax revenues and current account balance. New Zealand is also successful in implementing GST.

Lessons :

International experience shows that inflation went up in the short term as a lot of new services and goods are taxed under GST which was not taxed earlier. Another key refresh from Malaysia learning is that businesses need to start early with the implementation process to be GST-ready. The Malaysian Government received strong resentment even after providing 1.5 years for GST preparedness. One constructive learning that did come handy in the GST preparation in Malaysia was the release of sector specific guidance paper(s) on tax treatment concerning each business sector. It aided in addressing the “to be tax practice” associated with a particular business segment. Indian legislative bodies could look into similar publications to effectuate the implementation of GST in a smooth way. The International experience with GST suggests that it is necessary to keep the exemptions to the minimum. Among different countries, New Zealand has the least number of exemptions and the most comprehensive coverage of GST. It is important to resist the political pressures to accord exemptions to fulfil ostensible objectives of equity, administrative ease, regional development and many more.