Q&A: Piet Vandendriessche

GST: Learning from the European experience

The Centre and states are negotiating hard to roll out Goods and Services Tax (GST), which has already missed two deadlines. States want a band of rates on GST, as is the case in Europe, against the fixed rates suggested by the Centre. Piet Vandendriessche, an expert on indirect tax, of Deloitte International, tells Indivjal Dhasmana the experience of Europe with VAT (as GST is called there) and what India can learn from it. Edited exerpts:

Our state finance ministers visited Europe to study the GST model. After coming back, they said a band of GST rates is a much better idea than fixed rates, as proposed by the Centre. Which one do you consider a better model?
At the European level, we have only one provision, which says there can only be one standard rate and that standard rate is minimum 15 per cent. Member states can have one or more reduced rates, which are undefined. Indeed, in reality, there is a big diversion in rates.

Some countries do have the minimum 15 per cent — Luxembourg, for example — and many countries have increased their rate; and we now see a band of 12 percentage points — the lowest being 15 per cent and the highest being 27 per cent in Hungary.

I will say the experience is not negative to have a kind of band of rates rather than one fixed rate.

The Centre has also proposed a three-year phased roll-out of GST with the convergence of all rates from the third year. Is that gradual approach a better idea than having convergence from the beginning itself?
Obviously, the big question is how do you define goods and services. There is always a 10 per cent grey area. It tends to be the case that if you get convergence quickly, you will have a stable system. If you do it slowly, then various interest groups will put pressure to stay where we are.

After an initial debate, it has been decided to settle for a dual rate system — that is, both the Centre and the states will collect taxes — unlike the initial idea in certain quarters that the Centre will collect them and distribute among states. Which one do you think is feasible for a country like India?
The comparision between India and Europe should happen at European level. Today, in Europe we don’t have a dual VAT.

We have a single VAT that is entirely collected by the member states.

The Central European Authority is not collecting any tax. Within France there is only one VAT, and that is collected by the French government. Germany collects their own tax. Belgium collects their own tax. European Commission is not collecting any tax. India should learn from the good things in Europe but should also learn from the systems that have not worked in Europe.

First of all, a European system has too many exceptions, too many options, too many freedom is given to member states, so too many rates are there at the end. The system is some kind of a patchwork.