India recently voted to replace its confusing, overlapping federal and state taxes with a single tax on goods and services. The Goods and Services Tax (GST) Bill, which passed in August, could increase domestic product growth by 1%-2%, according to the country’s Finance Minister, Arun Jaitley. Some nationals have called the new law India’s most important tax reform since 1947.
About 7.5 million businesses and 1.3 billion consumers will be affected by the new GST system, which is expected to raise tax revenues and stimulate growth. It is similar to a value added tax (VAT) system, where the tax is borne by the final consumer. However, it is not without its complexity due to India’s existing dual federal system.
The Model GST Law introduces a dual GST system whereby a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on transactions. Both central and state authorities will legislate, levy, and administer the CGST and the SGST respectively.
A GST council has been established to provide final details, including specific exemptions. These details are expected to be released to the public by this month.
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