David Raistrick, global managing director, Indirect Taxes, Deloitte, believes that there is no halfway in the pursuit of introducing a goods and services tax (GST) and that economic-wide benefits of a unified indirect tax regime will not materialise if it has too many rates and exemptions. He spoke to KG Narendranath and Gireesh Chandra Prasad on the global GST experience and what India can take cue from. Excerpts:
There is opposition from some of the Indian states, particularly those with a strong manufacturing base, on GST being a destination-based tax. Is that the case elsewhere in the world too?
I believe the destination-based system is a better way of running GST. I can understand why some of the states may be concerned. Naturally, the central government will have to ensure that all the states have the financial certainty that they currently enjoy.
What is the best way to tax inter-state transactions under GST?
You don’t have to necessarily tax inter-state transactions under GST, although you can do it. You could look at the EU model. It is said the EU model is inter-state, the countries being states within the EU. If you really want to simplify GST, inter-state tax can be zero. When you really have a levy, you are back in the origin-based system, which is characteristically at variance with the current and emergent principles of world trade.
Aren’t there any inter-state taxes in the EU?
Not exactly. Different member states can charge but they tend to base it on the final supply. It is just the easy way to do it. India may like to have a GST system that will work alongside the rest of the world because Indian businesses are going to trade more and more with the rest of the world.
The US is one country that does not have a GST system…
There are some real parallels between India and the US. The US has not had a GST system because states themselves are very powerful. That is the way the US Constitution is designed. They cannot easily move into GST. They have the power to set tax rates. And they have very different rates. There is no input tax credit system in the US either. It is purely the rate that is charged at every stage of supply.
Does that make the US economy any less competitive?
It is the world’s largest economy today. It is really hard to say what would it