India could attract a larger chunk of foreign direct investment by moving to a single goods and service tax (GST) system, leading tax consultant PriceWaterhouseCoopers (PwC) has said.
India is proposing to move to a single GST regime by 10. This was announced in the Union Budget this year.According to Ine Lejeune, partner and leader of PwC global VAT and GST network, studies in Europe have shown that moving to such a levy led to a rise in foreign investment. The multi-layered tax structure is simplified, which makes the country more attractive from the point of view of foreign investment.
She said she has recommended adoption of the European model for India during her meetings with senior finance ministry and empowered committee officials. In Europe, it is a federal levy, and Ine advocated the same principle for India. She said the Central government here should collect it and distribute it to the states as per an agreed formula. Allowing states to also collect the GST would make the structure very complex. The European model, she claimed, was simple in structure and some studies have shown that it led to an increase in employment generation as well, she said.
She said while countries like Brazil and Canada have levied it at the provincial level also, India should go for the best practices available.
Asked about centres offer to allow states to collect tax on certain services as a compensation for phase out of Central Sales Tax, she said it would complicate the structure. Government has proposed a reduction of CST from October 1 from 4% to 3% as the first step to move to a national level VAT.
In fact, she said India must adopt the negative list approach with the taxation of services. By excluding certain identified services from the taxation list and taxing all others, India could have a simpler tax structure.