Goods and Services Tax or its substitute Value Added Tax, Conceptually a destination based tax on consumption of Goods and Services has been a global phenomenon for way too long now, We can trace it back to Year “1954” when France became the first country to introduce a comprehensive Goods and Service Tax regime in that year. Currently around 160 countries in the world have adopted GST or similar Tax Regime. The most interesting thing to note is that there are around 40 different models of GST presently in force, around the world, each having its own peculiarities.
The best way to categorize Goods and Services Tax is by recognizing who has the power to Levy such tax in the country. On that basis there are majorly two categorization:
- Single Levy
- Dual Levy (As in Canada & Brazil)
Countries across the world have used Goods and Services Tax as a tool to increase their revenue from Indirect Taxation, to increase the Tax Net and to decrease the number of Tax Evaders and simplify the Tax Ecosystem.
The most contentious issue that still needs to be to be resolved among the different governance in the world is deciding the rate at which Goods and Services Tax should be charged in the country. While the Governments across the world aim to increase their tax revenue through Goods and Services Tax, a higher rate will lead to tax evasion.
There have been two common factors which have been noticed worldwide wherever and whenever a Tax Structure like Goods and Services Tax has been introduced:
- Increase in inflation as Goods and Services Tax normally is kept at Revenue Neutral Model, which is generally above the ongoing rate structure.
- GDP growth at around 9%, resulting in development of the nation.
It’s a non deniable fact that the immediate impact of Goods and Services Tax is increase in inflation, especially if the effective tax rate is higher than what prevailed before. For instance, Singapore saw a spike in inflation in 1994 when it introduced the Goods and Services Tax but as the time sets in and the citizen/business personals get used to the phenomenon called Goods and Services Tax it leads to a more clearer and understandable tax structure contributing to the growth of economy.
One of the successful examples of Dual Goods and Services Tax model is Canada. Why Canada is important, because it is one country which even after strong political opposition has been successful in implementing Goods and Services Tax. But it has not been an easy task, the Government of Canada has been pragmatic as it worked towards the reduction of Goods and Services Tax rate couple of times, post implementation.
Most of the countries of European Union, UK, New Zealand and various other countries have been forth runner in implementing Goods and Services Tax and are now reaping the benefits of this destination based Tax Structure.
It should be understood that throughout the world, introduction Goods and Services Taxhas never been a single event of introduction of a new tax regime, rather it is a continuous process through which governments have brought in tax reforms.