GST in India vs GST in other countries – how India differs

Goods and service tax took India by a storm. It brought in the “One nation one tax” concept to unite indirect taxes under one umbrella and facilitate Indian businesses to be globally competitive. The Indian GST regime is structured for efficient tax collections, reduction in corruption, easy inter-state movement of goods, and more.

France was the first country to implement GST to reduce tax evasion. Since then, over 160 countries have implemented GST or VAT (on both goods and services), with some countries having a dual-GST model. For example, Brazil, Canada and India.

How the Indian GST model compares with GST in other countries

Particulars	India	Canada	UK	Singapore
Name of GST in the country	Goods and Service tax	Federal Goods and Service Tax & Harmonized Sales Tax	Value Added Tax	Goods and Service Tax
Standard Rate	0% (for food staples), 5%, 12%, 18% and 28% (+cess on luxury items)	GST 5% and HST varies from 0% to 15%	20 %Reduced rates- 5 %, exempt, zero rated	7% Reduced rates- Zero rated, exempt
Threshold exemption Limit	Rs.40 lakh or Rs.20 lakh, depending on the state and supply	Canadian $ 30,000	£ 85,000	Singapore $ 1 million
Liability arises on	Accrual basis: Issue of invoice ORReceipt of payment-earlier	Accrual basis: The date of issue of invoice OR the date of receiptof payment- earlier.	Accrual Basis: Invoice OR PaymentOR Supply-earliestCash basis (T/O up to 1.35mn): Payment	Accrual Basis: Issue of invoice OR Receipt of payment OR Supply – earliestCash basis: (T/O up to SGD$1mn): Payment
Returns andpayments	Monthly or quarterly and 1 annual return, based on turnover	Monthly, quarterly or annually based on turnover	Usually quarterly. Small business option- annual	Usually quarterly Business option- Monthlyreturns.
Reverse chargeMechanism	Applies on goods as well as services	Reverse charge applies to the importation of services andintangible properties	Applicable	Reverse charge applies to the supply of services
Exempt supplies	Sale of land and completed buildings, certain healthcare and educational services, essential food items, etc.	Real estate, financial services,rent (Residence), charities, health, education	Medical, education, finance, insurance, postal services	Real estate, Financial services, Residential rental

Let’s take a look at some other GST models:

GST in Australia

In Australia, the GST is a federal tax collected by the Australian Tax Office and then distributed amongst the states. It was introduced in 2000, and its current tax rate is 10%. There are many domestically-consumed items that are zero-rated such as fresh food, health services, and education, amongst others. Government charges and fees are also exempted, considering that they are themselves in the nature of taxes.

VAT in Brazil

There is a federal and state Value Added Tax (VAT) in Brazil. They also have other indirect taxes imposed on the supply of goods and services, and similar to India, they have multiple tax slabs under their indirect tax system. 

VAT in China

VAT was implemented in China in 1984, and the standard rate is 13%. However, a reduced rate of 9% and 6% apply to certain goods.

VAT in Indonesia

VAT was introduced in Indonesia in 1985, and is collected by the Directorate General of Taxation, Ministry of Finance. The standard rate is fixed at 11%, with plans to raise it to 12%. Basic commodities have been exempted from VAT.

VAT in France

VAT in France is collected on products or services at each stage of production or marketing and borne by the final consumer. The VAT rates comprise 20%, 10%, 5.5% and 2.1% slabs. 20% is the standard rate and is applicable to most goods.

GST in New Zealand

GST was introduced in New Zealand in 1986 and from July 1989 to September 2010, GST was levied at the rate of 12.5%, and 10% prior to that. It is currently levied at 15%. GST collects 31.4% of the total taxation, making New Zealand the highest-taxed country in the OECD in terms of sales tax as a proportion of the GDP.

VAT in the United Kingdom

VAT was introduced in the UK in 1973, replacing Purchase Tax. The default VAT rate has been 20% since January 2011, with some goods and services attracting a reduced rate of 5% or 0% and some being exempted. 

GST in the USA

The USA does not have any federal Value Added Tax levied on goods and services. Instead, there is a sales tax governed at a state level. 45 states, the District of Columbia, as well as the territories of Puerto Rico and Guam have imposed a general sales taxes that apply to both the sale or lease of many goods and some services. The states may also grant local governments the authority to levy additional general or selective sales taxes.

As of 2017, five states, i.e. Alaska, Delaware, Oregon, Montana and New Hampshire, do not levy a statewide sales tax. The highest base rate of sales tax is levied by California at 7.25%.

Unlike India, other countries have a much higher threshold for GST applicability thus reducing the burden on small businesses. This brings in challenges for SMEs.

Frequently Asked Questions (FAQs)

1.Why does India have a dual model of GST?

Similar to the US, the states have the power to administer and collect taxes. Transactions done within a state are subject to a central GST (CGST) levy as well as a state GST (SGST) levy by the Central and state governments, respectively. Interstate transactions attract integrated GST (IGST) levied by the Central Government.

Since GST is a consumption-based tax/destination-based tax, the taxes are paid to the state where the goods or services are consumed and not the state in which they were produced. However, IGST complicates the tax collection process as the revenue goes to the Central Government. The Central Government then allocates this amount between the Centre and the state concerned. 

2. What are the applicable rates and list of countries that have implemented GST?

Here are some of the major countries where GST is applicable and their standard rates in force. In some of these countries, the Goods and Services Tax is called Value Added Tax (VAT) or a similar term in their local language. 

It is important to note that a majority of these countries have exempted certain essential goods such as food, education, and health services, amongst others. Hence, the standard rates do not apply to such goods.

This list is not exhaustive.

Countries	Standard Indirect Tax Rates
Australia	10%
Bangladesh	15%
Canada	5% (additional HST applicable in some states)
China	13%
France	20%
Germany	19%
India	12% and 18%*
Indonesia	10
Japan	8%
Mexico	16%
Netherlands	21%
New Zealand	15%
Pakistan	17%
Russia	20%
Saudi Arabia	15%
Singapore	7%
South Africa	15%
South Korea	10%
Switzerland	7.7%
Thailand	7% (reduced from 10% for the time being)
United Arab Emirates	5%
United Kingdom	20%

*India does not have a standard GST rate. However, most non-essential goods fall under the 12% and 18% slabs (which is also the rate for services). Luxury goods and services have a special rate of 28%.

3. How many countries have implemented GST?

As of 2018, there were 166 out of 193 countries under the United Nations had implemented a VAT (or GST) system. This number includes all OECD members except the United States, where many of the states use a sales tax system instead.

Read here to find out more. Are you worried about how GST will impact your business? Register with us at Clear Tax to keep yourself up to date on GST. We also have experts to help you to smoothly transit to GST.

An edited version of this article has been published in Business Insider.