Indian GST and OECD guidelines

The Organization for Economic Co-operation and Development (OECD) was founded in the year 1961 to help stimulate world trade and spur economic progress. It has 34 countries in its fold, with many more seeking accessions. The prominent among the member countries are the US, UK, Germany, Canada, France, Italy, Spain, Australia and New Zealand. In 2010, the OECD Ministerial council had decided to strengthen co-operation with India, China, Brazil, Indonesia and South Africa through a process of increased engagement.

The OECD guidelines clearly specify that the burden of VAT should not lie on business except where required otherwise by the law. The tax burden should rest with the final customer. In case of services OECD makes it clear that the taxing jurisdiction of services and intangibles shall be based on the destination of final consumption.

If we examine the current situation of taxes in India, you will find that the tax on manufacture is origin based. However, the VAT and service tax adhere to the destination principle with the exception of performance based services, electronic supplies and interstate sale. If one carefully examines the VAT burden, he will find that it partially lies on business, in case of certain transactions.

With the VAT and service tax more or less on the lines of OECD guidelines the GST proposes to further bring the taxation on track. The defining principle that GST is a destination based tax and hinges on the point of consumption sticks to the guidelines of OECD. It is becoming clearer by the day that the burden of GST would be resting on the final consumer.  However, already there is a talk of excluding certain sectors from the purview of GST like petroleum products, alcohol etc. which could result in this principle being vitiated in some case.

How much we can free the businesses from the burden of GST remains to be seen as the finalization of the GST reform draws near. The business houses are definitely finding it business friendly,as long as the government avoids additional taxes like the 1% special tax to compensate for loss of interstate tax revenue of the states. They are also looking forward to the reduction in corporate taxes from 30% to 25% in a span of 4 years after the GST introduction.

The political stalemate has not deterred the government from going ahead with the other activities related to the GST bill. It has already allocated the IT software development program for the GST implementation to Infosys. The training for the officers for GST methodology and implementation is in full swing. The states are also upgrading their IT infrastructure to be able to match the requirements of the central IT portal of GSTN. The government also seems hell bent upon taking up the passage of the bill strongly with the Congress opposition in the forthcoming winter session of the Parliament. By that time the results of the Bihar elections would also be out and the political scenario would have further clarity.

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