Global GST Rate and Structure

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Currently, around 160 countries have adopted the GST or similar taxation system. It is interesting to note that there are over 40 models of GST currently in force, each with its own peculiarities. The best GST systems across the world use a single GST while India has opted for a dual-GST model. Dual GST is a type of GST in which both center and state governments will levy GST separately, rather than centre alone levying taxes and sharing their revenues with the states.

GST rates and Model already implemented in some countries are given below:

Country Rate of GST GST Model
Canada

(introduce in 1991)

5% Duel (Federal GST and States Sales Tax)
Australia

(Introduce in 2000)

10% Single (Federal GST)
Singapore

(introduce in 1994)

7% Single
New Zealand

(introduce in 1886)

15% Single
European Union

(introduce in 2006)

Standard Rate of 15% Duel
China

(introduce in 1994)

17% Single
Japan

(introduce in 1989)

5% Single
South Korea

(introduce in 1977)

10% Single
Malaysia

(introduce in 2015)

6% Single

 

For India, A dual GST module has been accepted by centre. Under this model GST have two components viz. the Central GST to be levied and collected by the Centre and the State GST to be levied and collected by the respective States. Critics claim that Central and State GST are nothing but new names for Central Excise/Service Tax, VAT and CST and hence GST brings nothing new to the table.

In India, the sub-committee has proposed a total RNR (Revenue Neutral Rate) of around 27% for the duel structure GST. On compassion from above table, the proposed Rate is seems to be at higher side.  Mr. Dr. P Shome who is part of Empowered Committee of State Finance Ministers for GST, has elaborated on why the tax rate are lower in some countries:

“voluntary compliance even by large corporations in India was not at the desirable level and that countries that had reduced VAT/GST rates have subsumed many taxes in that framework and tax structure was made linear by doing away with tax breaks”

The government is to announce the GST rate. Dr. Shome said countries having a rate of up to 18 per cent — Australia, the UK, New Zealand, Chile, China, Germany and Indonesia — had seen reduced evasion from trade, and realised around 9 per cent GDP revenue.

Tax evasion would increase if the rate was high, as in the case of Romania with a GST of 25 per cent and 50 per cent evaders.

The critical factor which determine the GST Rate for India are:

  1. Collection of Central and State Governments from present taxes (Excise Duty, CVD, SAD, Service Tax, VAT etc.)
  2. Expanding the Tax Base on GST implementation
  3. Curve tax evasion practices
  4. Impact on currently exempted Goods and Services (Agriculture, Minerals, Power, Water, Financial Services etc.)

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