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A Comparative Analysis of Goods and Services Tax in Countries Around the World
The Goods and Services Tax (GST) is a value added tax levied on most goods and services sold for domestic consumption[1]. This means that, in each stage of production of a good, when some value is added, GST is charged on this addition of value. For example, a biscuit manufacturer buys raw materials such as flour and sugar and when these ingredients are combined to make biscuits value is added to them. The biscuits are then sold to a warehousing agent who adds his label to the biscuits thus adding more value. When these packaged biscuits are sold in the market their value is once again increased. GST is therefore levied on these value additions, which is the monetary value added at each stage until it reaches the customer[2]. The introduction of GST was first seen in France in 1954 as an attempt to bring all indirect taxes under one umbrella and since then over 160 countries, including Canada, India, Vietnam, Australia, Singapore, U.K, Spain and Nigeria, have adopted some variation of it[3].
India established a dual GST structure (State Goods and Services Tax & Central Goods and Services Tax) on 1st July 2017 through the Goods and Service Tax Act. Central Goods and Services Tax (CGST) is collected by the Central Government on intra-state sales while State Goods and Services Tax (SGST) is collected by the State Government on intra-state sales. Prior to GST, intra-state sales where taxed by the State Government under Value Added Tax (VAT) and inter-state sales were taxed by the Central Government, while many indirect taxes where levied by both State and Centre causing a lot of overlap. There are 5 tax slab rates under the GST regime in India[4] –
- 0% for certain foods, books, newspapers, hotel services and homespun cotton
- 5% on household necessities such as sugar, spices, tea, coffee
- 12% on computers and processed food
- 18% on hair oil, toothpaste, soap and industrial intermediaries
- 28% on luxury products like refrigerators, cigarettes, cars, motorcycles and ceramic tiles
In Singapore and New Zealand, the tax rate is uniform at 7% in the former country and 15% in the latter, both low compared to India.
In Indonesia, imports are subject to VAT and GST, but most exports are exempted from it. The tax rate is 10% if the services are supplied out of Indonesia by foreign taxpayers, while certain items are taxed at 20% with the cap of 35%. The luxury tax which is applicable on import is 10% to 50%.
The United Kingdom and China have similar tax slabs when it comes to GST when the rates are 0%, 5% and 20% in the U.K, and 0%, 5% and 19% in China.
GST in Brazil is much independent and carefree in comparison to other nations with six tax slabs (0%, 1.65%, 2%, 7%, 12%, and 17%) and a dividing rule of taxes between the States and the Centre. This dual system of taxation was replicated in India and it is followed by Canada as well. In a dual system, the federal GST or SGST is applied in addition to the state sales tax rather than a unified economy where the Centre collects tax and divides it among the States[5]. In Canada, for example, the federal government levies a 5% tax and some provinces/states also levy a provincial state tax (PST), which varies from 7% to 10%[6].
Thus, the GST model among the Commonwealth countries work on similar lines with some variations but unlike India, other countries have a higher threshold for GST applicability and this reduces the burden on small businesses.
[1] Julia Kagan, Goods and Services Tax (GST), Investopedia, (Apr. 2, 2020, 3:24 PM), https://www.investopedia.com/terms/g/gst.asp.
[2] Editor, Goods and Services Tax GST (India) What is GST? Indirect Tax Law explained, ClearTax, (Apr. 6, 2020, 9:53 AM), https://cleartax.in/s/gst-law-goods-and-services-tax.
[3] Editor, GST in India vs GST in other countries – how India Differs, ClearTax, (Nov. 28, 2019, 1:15 PM), https://cleartax.in/s/gst-india-and-other-countries-comparison.
[4] Subodh Kumawat, Difference Explained: GST in India vs GST in Other Countries, SagInfotech, (Dec. 10, 2019, 12:13 PM), https://blog.saginfotech.com/gst-india-vs-foreign-gst.
[5] India Today Web Desk, GST: Where does India’s tax model stand against other prominent countries? IndiaToday, (Dec. 28, 2018, 10:17 PM), https://www.indiatoday.in/business/story/gst-india-tax-model-comparison-with-canada-australia-china-uk-us-1416488-2018-12-24.
[6] Supra note 1.
- GST
- Comparison
- Indirect Tax
