GST to be simple with 1% additional tax removal, say experts

Analysts believe the GST could boost India's economic growth by up to 2 percentage points

With the government dropping the contentious 1 per cent additional inter-state tax, the proposed national sales tax or the GST stands simplified with aberrations removed, said tax experts.

Ahead of Rajya Sabha considering the biggest indirect tax reform measure since independence, the government has met a key opposition demand of scrapping 1 per cent additional tax on inter-state movement of goods. It has also agreed to compensate states for any revenue losses for five years.

"The tax process/system under GST would stand simplified with the government's decision to do away with 1 per cent additional tax on interstate supplies.

"...Tax would have resulted in a cascading tax on interstate supplies, resulting in an otherwise not so pure GST and would have also driven companies to consider the same while making warehousing/logistics decisions," said Mahesh Jaising, Partner, BMR & Associates LLP.

The Goods and Services Tax (GST) seeks to replace a slew of Centre taxes and levies in 29 states, transforming the nation into a customs union.

Analysts believe the GST could boost India's economic growth by up to 2 percentage points.

Sachin Menon Partner and Head, Indirect Tax at KPMG, said the changes made in the GST Bill shows the commitment of the government to introduce GST.

"Hope our representatives put the nation first, behave responsibly to pass the GST bill," he said.

The Bill is listed for consideration in the Upper House this week.

PwC Partner (Indirect Tax) Anita Rastogi said the proposed 1 per cent tax was not in line with the key concepts of GST, as the levy would have been a cost in the entire supply chain at various supply incidences. "Hence its removal is a welcome decision".

Nitish Sharma, partner, Nangia & Co said the doing away with additional tax is favourable step towards removing impediment in the credit chain and would certainly simplify the tax process.

Photograph: Reuters