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GST in India among most complex in the world, is second highest in tax rate: World Bank

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7 years ago

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GST

If the goods and services tax (GST) system and rates have got you reaching out for pills to quell a headache, you will derive satisfaction from a World Bank report that agrees with you.

The GST system introduced by Narendra Modi government in India on July 1 last year is among the most complex in the world and is the second highest in tax rate, said the World Bank in a report covering 115 countries with similar indirect tax system.

The World Bank, in its bi-annual India Development Update released on Wednesday, March 14, said the complexity of India’s GST, was due to “higher tax rates and large number of tax slabs” compared with similar systems in other countries. GST has multiple tax rates of 0, 5, 12, 18, and 28%. Separately, gold is taxed at 3 percent, precious stones at 0.25 percent.

Further, there are several exempted sales and exports are zero rated, which allows exporters to claim refund for taxes paid on inputs that go into production process.

Alcohol, petroleum products, stamp duties on real estate and electricity duties are excluded from the GST and continue to be taxed by the state governments at state-specific rates.

This compares unfavourably with other regimes across the world as most countries have a single rate of GST. For example, the report said, India’s highest slab of 28% is the second-highest among 115 sampled countries and the highest in Asia.

The report said that 49 countries use a single rate, 28 use two rates, and only five including India use four non-zero slabs. The countries that use four or more rates of GST include Italy, Luxembourg, Pakistan and Ghana. Thus, India has among the highest number of different GST rates in the world.

The threshold of Rs 1.5 crore of annual turnover under GST for companies to opt for a simpler compliance regime with a flat tax rate called ‘composition scheme’ is also highest among 31 countries, the report said.

The World Bank report also argued against exemptions provided in the GST structure as these reduced the tax base and compromised on the logic of the GST by reintroducing cascading of taxes. “While exemptions allow easing the tax burden on items with high social value, such as healthcare… it creates incentives for vertical integration to keep the exempt status and raise compliance costs by making it necessary to allocate input taxes between exempt and non-exempt output when manufactured or traded together,” the report said.

The World Bank report said the introduction of GST has been accompanied by state administrations experiencing disruptions in initial days after GST’s introduction. This included lack of clarity on discontinuation of local taxes, for example, in Tamil Nadu where the state government devolved an entertainment tax to local governments in order to impose it over and above a 28% GST. To preserve revenue collections, Maharashtra has also increased motor vehicles tax to compensate for losses due to GST.

There also have been reports of an increased administrative tax compliance burden on firms and a locking-up of working capital due to slow tax refund processing, the World Bank said. “High compliance costs are also arising because the prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate. Along with the need to apply the correct rate, firms are required to match invoices between their outputs and inputs to be eligible for full input tax credit, which increases compliance costs further,” it added.

“While international experience suggests that the adjustment process can affect economic activity for multiple months, the benefits of the GST are likely to outweigh its costs in the long run. It added that the key to success of GST was a policy design that minimises compliance burden by cutting number of rate slabs and limiting exemptions with simple laws and procedures, an appropriately structured and resourced administration,” the report said.

The GST was intended to replaced multiple tariffs and levies imposed by the centre and states and bring a uniform system. While the GST Council — the decision-making body for GST — had put well over 200 items in the highest bracket of 28% at the time of roll-out, it has since reduced the items under the slab to 50.

Finance minister Arun Jaitley has said there’s scope to merge 12 percent and 18 percent slabs in order to make it more transparent, efficient and tax payer-friendly.

While the government assured that GST will help curb black or untaxed money and steadily expand the base of taxpayers, complicated tax slabs and lack of proper IT infrastructure have become a problem for businesses.

But there is “positive impulse” expected from GST system as it is likely to improve the domestic flow of goods and services, contribute to the formalization of the economy and sustainably enhance growth, the World Bank observed.

However, notwithstanding the recent momentum, India will have to address several structural challenges to attain a growth rate of 8 percent and higher on a sustained basis, the World Bank said.

India would need to boost private investments and exports – its two lagging engines of growth – while maintaining its hard-won macroeconomic stability to boost growth.

“This will require continued impetus for structural reforms. Resorting to countercyclical policies will not help spur sustained growth and India should not compromise its hard-earned fiscal discipline in order to accelerate growth,” said Poonam Gupta, lead economist and the main author of the report.

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Google announces country-specific domain names for its search page

This transition to a centralised domain may help Google optimise AI performance in delivering relevant search results.

Published

2 weeks ago

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April 17, 2025

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In a significant move aimed at unifying its search experience, Google has announced plans to phase out country-level domain names, such as google.ng for Nigeria and google.com.br for Brazil. Instead, the tech giant will redirect users globally to a standardised domain, google.com. This decision aligns with Google’s ongoing effort to enhance search functionality and accessibility, building on the improvement in local search capabilities introduced in 2017.

In a recent blog post, Google explained that it will begin redirecting traffic from these country code top-level domains (ccTLDs) to google.com. This transition will be implemented gradually over the coming months. Users may be prompted to adjust their search preferences during this process, as the company works to streamline the user experience.

“Historically, our approach to delivering localised search results relied on ccTLDs,” Google stated. “However, our capability to offer localised experiences has evolved significantly, making these distinctions unnecessary.” The company reassured users that the core functionality of its search platform will remain unchanged and that compliance with various national regulations will continue.

This initiative reflects Google’s commitment to improving how search results are tailored to individual users without the need for separate country-specific domains. While the official rationale emphasises enhancing global user experience, some industry experts speculate that the change may also be motivated by a desire to better integrate artificial intelligence (AI) into search results, potentially leading to reduced operational costs.

Google employs AI Overviews, a tool designed to aggregate information from a broad range of online sources to provide concise responses to user inquiries. This transition to a centralised domain may help Google optimise AI performance in delivering relevant search results.

Overall, as Google implements this shift, users can expect a more unified search experience. While changes in browser addresses may occur, Google emphasises that the way search operates and its compliance with national laws will remain consistent. This strategic shift signifies Google’s ongoing efforts to adapt to the evolving digital landscape and user needs globally.

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In HUL vs HCL defamation case, Delhi HC orders take down of Lakme sunscreen ad disparaging Derma Co

Honasa, in its plea to the Delhi High Court, argued that HUL’s claims are misleading and disparage competitors, damaging their reputation. In retaliation, HUL filed a countersuit against Honasa in the Bombay High Court, escalating the corporate feud.

Published

2 weeks ago

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April 17, 2025

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A legal showdown between Honasa Consumer Ltd. (HCL), the parent company of Mamaearth, and Hindustan Unilever Ltd. (HUL), which owns Lakmé, reached the Delhi High Court this week, with both FMCG giants filing defamation lawsuits against each other. On Thursday, the court ordered HUL to pull its current Lakmé sunscreen advertisements, prompting the company to agree to revise its campaign by removing references to “online bestseller” and altering the depicted packaging colours.

The dispute centres on Lakmé’s recent “SPF Lie Detector Test” campaign, which HCL alleges unfairly targets its Derma Co. sunscreen by questioning the efficacy of rival products.

In the ads, HUL claims that some “online bestseller” sunscreens, marketed as SPF 50, provide protection closer to SPF 20, based on in-vivo testing data from the past decade. While no brands are explicitly named, visuals juxtaposing yellow bottles—resembling Derma Co.’s packaging—against Lakmé’s sparked Honasa’s ire.

Honasa, in its plea to the Delhi High Court, argued that HUL’s claims are misleading and disparage competitors, damaging their reputation. In retaliation, HUL filed a countersuit against Honasa in the Bombay High Court, escalating the corporate feud.

The controversy erupted when Ghazal Alagh, co-founder of Honasa, took to LinkedIn to criticise the FMCG sector’s lack of competitive drive, suggesting that legacy brands like HUL have grown complacent. Her comments were seen as a direct jab at Lakmé’s campaign, which challenges the SPF claims of newer sunscreen brands dominating online markets. “The industry needs fresh competition to shake things up,” Alagh wrote, igniting a public spat.

Lakmé’s campaign asserts that some top-selling sunscreens falsely claim in vivo testing—a method involving live organisms like humans or animals—while delivering subpar protection. In a social media statement, Lakmé doubled down, saying, “Certain online bestsellers advertise SPF 50, but their in-market samples test closer to SPF 20.”

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Sensex and Nifty jump nearly 2% as US suspends additional 26% tariffs on India until July 9

Foreign Institutional Investors (FIIs) had sold equities worth ₹4,358.02 crore on Wednesday, signaling caution, but Friday’s momentum suggested a shift in sentiment.

Published

3 weeks ago

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April 11, 2025

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Indian stock markets staged a robust rally on Friday, with the BSE Sensex skyrocketing 1,310.11 points, a 1.77% gain, to close at 75,157.26. The NSE Nifty followed suit, climbing 429.40 points or 1.92% to settle at 22,828.55, breaching the 22,900 mark during intra-day trading. The surge came on the heels of a White House announcement suspending additional tariffs on India for 90 days until July 9, offering a reprieve amid global trade tensions.

The US decision, detailed in recent executive orders, pauses levies that President Donald Trump had imposed on April 2, targeting India and roughly 60 other nations. Those duties threatened Indian exports ranging from steel to shrimp, raising concerns about competitiveness in the US, the world’s largest economy. The temporary suspension sparked optimism among Indian investors, propelling gains across major sectors.

Leading the charge among Sensex constituents were heavyweights like Tata Steel, Reliance Industries, Power Grid, NTPC, Kotak Mahindra Bank, and Adani Ports. However, not all stocks joined the rally—Asian Paints and Tata Consultancy Services lagged behind, unable to capitalize on the upbeat mood.

Vinod Nair, Head of Research at Geojit Investments Limited, attributed the market’s buoyancy to the tariff relief. “The unexpected pause on US tariffs provided a much-needed breather amid global uncertainties,” Nair noted. He added that while a major IT firm’s recent results fell short of expectations, its robust order book signaled potential growth in the latter half of FY26.

The Indian markets’ performance stood in stark contrast to global trends, where fears of a US-China tariff war cast a shadow. On Friday, China escalated its trade spat with the US, hiking tariffs on American imports to 125% in response to Washington’s 145% levies on Chinese goods.

Asian markets reflected the unease, with Tokyo’s Nikkei 225 plunging nearly 3% and South Korea’s Kospi slipping, though Shanghai’s SSE Composite and Hong Kong’s Hang Seng bucked the trend with gains. European markets traded lower, while US indices had closed sharply down on Thursday, with the Nasdaq tumbling 4.31%, the S&P 500 falling 3.46%, and the Dow Jones shedding 2.50%.

Back home, the rally followed a lackluster Wednesday, when the Sensex dipped 379.93 points to 73,847.15 and the Nifty fell 136.70 points to 22,399.15. Thursday’s market holiday for Shri Mahavir Jayanti gave investors a pause before Friday’s surge. Foreign Institutional Investors (FIIs) had sold equities worth ₹4,358.02 crore on Wednesday, signaling caution, but Friday’s momentum suggested a shift in sentiment.

Elsewhere, global oil prices edged up, with Brent crude rising 0.32% to $63.53 a barrel, reflecting ongoing volatility in commodity markets.

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