How India can improve its GST laws by comparing it with Singapore

Introduction

The Goods and Services Tax (GST) or Value Added Tax (VAT) is an indirect tax added at the time of purchase on most goods and services that are sold for domestic consumption. GST is collected by the seller and remitted to the government, thus acting as a form of revenue for the government. This system was first introduced by France in 1954 and gradually adopted by almost 150 countries, India being one of them. (1)

Overview of GST Systems

India's GST System

Implemented in the year 2016 by the Constitution (101 Amendment) Act, the objective of GST was to replace the already existing complex tax structure with a unified and simpler system to reduce tax cascading and promote economic integration. A GST Council was formed to make decisions on various aspects of GST. The Council played an essential role in shaping the framework of GST. It consists of the Union Finance Minister and representatives from all States and Union Territories. (2)

The foundation of this consumption based tax is the "principle of destination." Goods and services are subject to GST at the location of ultimate consumption. Value-added products and services are subject to GST collection at every point of sale or purchase in the supply chain. GST paid on the purchase of goods and services may be deducted from GST due on the delivery of same goods or services. The applicable GST rate will be paid by the manufacturer, wholesaler, or retailer; however, they will be reimbursed through the tax credit method. In many ways, however, GST is similar to a last-point retail tax because the last customer in the supply chain is the one who must pay this tax. (3)

Singapore's GST System

Singapore's Goods and Services Tax (GST) system, introduced on April 1, 1994, at an initial rate of 3%, has undergone significant evolution as part of the country's broader tax reform strategy. The GST rate has incrementally increased over the years, reaching 9% in 2024. This broad-based consumption tax applies to most goods and services in Singapore, including imports. Businesses with annual taxable turnover exceeding SGD 1 million must register for GST and file quarterly returns. The system allows for input tax credits and includes measures like the GST Voucher scheme to assist lower-income households and a Tourist Refund Scheme. In 2020, Singapore implemented reverse charge and overseas vendor registration to tax imported services. While the GST system has been a cornerstone of Singapore's tax policy, it continues to adapt to changing economic conditions and global tax trends. (5)

Comparative Analysis

GST Rate Structure

India:

Under the Indian system of GST, there are tax slabs - 5%, 12%, 18%, and 28%. There is a special rate of 0.25 per cent on rough precious and semi-precious stones and 3 per cent on gold (1). Certain necessities are free from this Goods and Services Tax, while certain luxury products and demerit goods are subject to a compensation tax. (2)

Singapore:

The system that Singapore uses employs a single standard rate which is currently 8% and set to increase to 9% in the coming years. This simplicity of a single rate ensures predictability and ease of compliance for businesses (Singpore GST).

Compliance and Administration

To prepare for the implementation of GST, extensive efforts were made to build the necessary technological infrastructure and train tax officials and businesses. GST Network (GSTN), a not-for-profit company, was created to provide the IT backbone for the GST system, including taxpayer registration, return filing, and tax payments.

Since its implementation, the Indian GST has undergone various amendments and refinements based on feedback from businesses and the evolving economic scenario. While the GST implementation initially posed challenges for businesses in terms of understanding the new compliance requirements and adapting to the changes, it has gradually settled into the Indian tax landscape.

It can be said that the history of GST in India showcases a monumental shift in the country's tax structure, aiming to create a more unified, efficient, and transparent indirect tax regime for the benefit of businesses and the economy as a whole. (2)

Singapore: Streamlined processes, ease of compliance, and robust digital systems

Singapore's GST system is known for its streamlined processes, ease of compliance, and robust digital systems. The system is user-friendly, and the regulatory framework is clear and consistent (10)

Singapore leverages advanced technology to ensure smooth and efficient GST compliance, making it easier for businesses to meet their tax obligations (11)

Policy Recommendations for India

Rate Simplification

Steps towards a unified rate structure

Moving towards a more unified rate structure can simplify the tax regime, reduce classification disputes, and enhance compliance. A simpler rate structure make it easier for businesses to understand their tax liabilities, reducing administrative burdens and the potential for errors. A single or fewer tax rates can also eliminate disputes related to the classification of goods and services under different tax slabs.(4)

Addressing revenue implications and stakeholder concerns

Any changes to the rate structure should consider the revenue implications for the government and address concerns from various stakeholders, including businesses and state governments. A balanced approach is necessary to ensure that while simplifying the tax regime, the revenue neutrality and fiscal stability of the government are maintained (2).

Enhancing Digital Infrastructure

Investing in technology to streamline GST compliance

Investing in technology to streamline GST compliance can significantly reduce administrative burdens on businesses and tax authorities. Robust digital infrastructure ensures efficient tax filing, processing, and monitoring, leading to better compliance and reduced errors (5).

Learning from Singapore's digital solutions

Developing user-friendly digital systems, like those in Singapore, can encourage voluntary compliance. Singapore’s digital solutions provide a seamless experience for businesses, from registration to filing and refunds, making it easier for businesses to comply with GST regulations. (10)

Improving ITC Mechanism

Reducing complexities and ensuring timely credits

Simplifying the Input Tax Credit (ITC) mechanism can ensure timely credits and improve cash flow for businesses. A straightforward and transparent ITC process can reduce delays and disputes, providing businesses with the working capital they need (7).

Leveraging technology for better ITC management

Leveraging technology for better ITC management can enhance transparency and reduce disputes related to credits. Advanced IT systems can track and verify credits in real-time, ensuring that businesses receive their entitled credits promptly (8).

Supporting Small Businesses

Revisiting thresholds and simplifying processes

Revisiting the GST registration thresholds and simplifying compliance processes for small businesses can reduce their administrative burden and encourage participation in the formal economy. Simplified processes and higher thresholds can make it easier for small businesses to comply without significant cost or effort (9).

Creating targeted support programs

Creating targeted support programs can help small businesses adapt to the GST regime and thrive. These programs can include financial aid, training and resources to assist small businesses in understanding and complying with GST requirements (4).

Strengthening Dispute Resolution

Establishing faster, more transparent resolution mechanisms

Establishing faster and more transparent dispute resolution mechanisms can build trust and reduce litigation. Effiicient resolution processes can ensure that disputes are settled quickly, minimizing disruptions to business operations. (7)

Incorporating best practices from Singapore's system

Incorporating best practices from Singapore's system can help in developing an effective and fair dispute resolution framework. Singapore’s approach to dispute resolution in GST is known for its efficiency and fairness, providing a model that india can adapt to improve its own processes. (5)

Conclusion

The comparative analysis of India’s and Singapore’s GST systems reveals significant insights into potential improvements for India’s GST framework. While both countries aim to create efficient and comprehensive tax systems, Singapore’s experience highlights several areas where India can learn and improve.

Rate Simplification: India’s complex tax rate structure, with multiple slabs, could benefit from simplification. Moving towards a more unified rate structure, similar to Singapore’s single standard rate, can reduce classification disputes and enhance compliance. This change, however, must be balanced with careful consideration of revenue implications and stakeholder concerns to maintain fiscal stability and meet the needs of all sectors.

Enhancing Digital Infrastructure: India can significantly improve its GST compliance by investing in robust digital infrastructure. Learning from Singapore's advanced and user-friendly digital solutions can streamline GST processes, reduce administrative burdens, and make compliance easier for businesses. This includes efficient systems for taxpayer registration, return filing, and tax payments.

Improving ITC Mechanism: Simplifying the Input Tax Credit (ITC) mechanism is crucial for ensuring timely credits and improving cash flow for businesses. Leveraging technology for better ITC management, as seen in Singapore, can enhance transparency and reduce disputes. Advanced IT systems can help track and verify credits in real-time, ensuring businesses receive their entitled credits promptly.

Supporting Small Businesses: Revisiting GST registration thresholds and simplifying compliance processes can reduce the administrative burden on small businesses and encourage their participation in the formal economy. Targeted support programs, including financial aid, training, and resources, can help small businesses adapt to the GST regime and thrive.

Strengthening Dispute Resolution: Establishing faster and more transparent dispute resolution mechanisms can build trust and reduce litigation. India can incorporate best practices from Singapore’s efficient and fair dispute resolution framework to develop an effective system for handling GST-related disputes.

By adopting these recommendations, India can enhance its GST system, making it more efficient, business-friendly, and transparent. This, in turn, can foster a better economic environment, promote compliance, and ultimately support the growth and stability of the Indian economy.