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GST- the international experience
December, 19th 2009

Last month the government finally came out with a so called white paper for goods and services tax (GST) and there have been number of concerns that industry and consultants have had around this white paper. In an exclusive interview with CNBC-TV18 Piet Vandendriessche, Global Indirect Tax Leader at Deloitte resolves some concerns surrounding the norm.

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: I just want to start with the first concern which is the proposed timeline, they have talked about April 1, 2010, they have been talking about it for a while, from what you have seen and from your experience in other jurisdictions does this seem to be realistic to you?

A: I believe it is important that the dateline foresees sufficient time for the businesses and enterprises to prepare themselves for the implementation because an implementation of such a system has a very wide impact on the business. It does not only impact the accounting department, but also impacts the systems, some legal provisions, pricing and the supply chain. So I believe it is important that we give sufficient time to the businesses to study the legislation, implement it and then asses its impact on the business.

What we see in other jurisdictions is that the usual time between the availability of the law and the date of implementation is usually around 18 months in order to provide sufficient time for the businesses.

Q: I think one of the concerns in India has been that the implementation of GST will turn out to be likely implementation of value added tax (VAT) in a certain sense, VAT introduced in 2005 and all the states adopted it slowly one by one and I think it was only very recently that all the states in the country have finally come around to the VAT system, do you think something like that make sense for GST, do you think it makes sense to have a piecemeal approach where each state adopts it over an extended period of time or do you think it has to be done in one fell through?

A: What we have in Europe is European directive which gives a framework in order to allow member states to translate this into national legislation and the date of implementation and the applicability is always the same in every member state. So I believe it makes sense to adopt it at the same time for every member state from my perspective.

Q: Although the white paper hasnt said anything about a rate yet from what we see it looks like it will be between 16% and 20%, from your experience is that too high because I think that has been one of the concerns?

A: In Europe and in other jurisdictions in the world, we have wide range of rates. To give you an understanding in Europe, there is a difference in rates between the lowest 15% and the highest 25% which is quite a big bracket. Also in other parts of the world, we have rates along the lines of 20% but sometimes higher, sometimes lower. So I believe it is up to the government and the budgets to see what rate is most appropriate to levy.

Q: The other thing is that certain taxes have been kept outside the purview of the GST, I think purchase tax has been kept out, tax on alcohol, tobacco and petroleum, is that something that is common in other jurisdictions to keep certain taxes out because it seems to me to be defeating the entire purpose of GST which is a consolidated simple tax regime with clarity across the board?

A: We do see in other jurisdictions that certain goods and services are kept out of the system. With respect to the typical products that you mentioned, alcohol, tobacco and others, in Europe, they are inside the system. So there is VAT levied on alcohol products, on petroleum products. So I dont see an immediate reason why these products need to be kept out of the system.

Q: What might the impact be if certain taxes are kept outside sort of the purview of GST because like I said if the goal is to consolidate the tax regime, make it easier and simpler for everybody, would this not give rise to greater confusion?

A: I think it would. In my view it would be easier if these products would just be kept into the system in order to make the system easier to apply.

Q: From your experience and what you have seen in the European union, what is critical for India for the government in the states to achieve over the course of the next few months as they move towards the GST regime, what would make this implementation process smoother and easier for the government, for industry and for everybody else involved?

A: In the system we have three players. We have the consumer that is paying the tax; we have the government where the taxes is going to but we have the enterprises, the businesses in the middle who are collecting the tax. I believe it is very important that the government gives a sufficient amount of time to the businesses to prepare themselves in order for them to allow to take up their important role as collector of the tax.

What we see in other situations is that businesses really need sufficient amount of time to prepare themselves in order to prepare for this change. It is important for the businesses to have sufficient good change plan in order to assess all of the changes that has come out of this new GST system.

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