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116 GOODS & SERVICES TAX - MAGAZINE [Vol. 1 New Zealand innovation, the zero rating of business-to-business financial services in 2003. In comparison to the much older and far more often amended income-tax, this young tax appears to be static and local - even parochial, at times - as well as being less litigated, researched and taught. Considerable time was spent in developing the initial framework for GST in New Zealand. Hence, there have not been many amendments since the initial enactment. Amendments have been made to remedy in unforeseen circumstances or to clarify policy issues. GST in New Zealand has proved to be efficient and, by and large, a problem-free tax to administer. It contributes substantial revenue to the Government. India needs to take lessons from New Zealand to ensure that a robust GST is enacted taking care to avoid ambiguities in drafting the law so that the Act may not get involved in litigation from the very beginning. 2.3 CANADIAN GST - The Canadian Goods and Services Tax (GST) is a multilevel value-added tax introduced in Canada on January 1, 1991. The GST replaced a hidden 13.5 per cent Manufacturers’ Sales Tax (MST). The GST was implemented because the MST hurt the manufacturing sector’s ability to export. The introduction of the GST was very controversial. As of January 1, 2008, the GST currently stands at 5 per cent. There is a 5 per cent tax on all products, except certain essentials such as groceries, residential rent, and medical services, and services such as financial services. The tax is levied on each sale. Businesses that purchase goods and services as inputs can claim ‘input tax credits’ (i.e., they deduct the amount of GST they have collected from the amount of GST that they have paid). This avoids ‘cascading’ (i.e., the application of the GST on the same goods or service several times as it passes from business to business on its way to the final consumer). In this way, the tax is effectively borne by the final consumer. Unfortunately, this system is not completely effective, as shown by criminals who defrauded the system by claiming GST input credits for non-existent sales by a fictional company. Exported goods are exempt (‘zero-rated’), while individuals with low incomes can receive a GST rebate calculated in conjunction with their income-tax. In 1997, the provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador and the Government of Canada merged their respective sales taxes into the Harmonized Sales Tax (HST). In those provinces, the current HST rate is 13 per cent. HST is administered by the federal Government, with revenues divided among participating Governments according to a formula. All other provinces continue to impose a separate sales tax at the retail level only, with the exception of Alberta, which does not have a provincial sales tax. In PEI and Quebee, the provincial taxes include the GST in their base. The three territories of Canada (Yukon, Northwest Territories and Nunavut) do not have territorial sales taxes. The Government of Quebee administers both the federal GST and the GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 26
2010] GST - THE SCENARIO IN SOME OTHER COUNTRIES 117 provincial Quebee Sales Tax (QST). It is the only province to administer the federal tax. Certain services have the tax added in such a way that the total cost is rounded to the nearest multiple of cents. Almost everyone has to pay GST/HST on purchase of taxable supplies of goods and services (other than zero-rates supplies). Some sales or supplies are exempt from GST/HST. Although the consumer pays the tax, businesses are generally responsible for collecting and remitting it to the Government. Businesses that are required to have a GST/HST registration number are called registrants. Taxable supplies refer to supplies of goods and services that are provided in the course of a commercial activity and are subject to GST/HST, or are 0 per cent (zero-rated). Zero-rated supplies refer to a limited number of goods and services that are taxable at the rate of 0 per cent. This means that there is no GST/HST charged on the supply of these goods and services, but GST/HST registrants can claim an ITC for the GST/HST they pay or owe on purchases and expenses made to provide them. Exempt supplies are goods and services that are not subject to GST/HST. Registrants cannot claim input tax credits to recover the GST/HST they pay or owe on expenses related to such supplies. Effective from January 1, 2008, the GST rate is reduced from 6 per cent to 5 per cent, and the HST rate from 14 per cent to 13 per cent. In Canada, GST is a multilevel VAT implemented because the Manufacturers Sales Tax (MST) was hurting this sector’s ability to export. GST helped the Canadian economy, became more efficient and competitive with lower priced goods for the international market. It accounts for approximately 15 per cent to 17 per cent of total federal revenues. 2.4 SINGAPORE GST - GST was first introduced in Singapore on April 1, 1994 at 3 per cent. The GST rate was increased to 4 per cent in 2003 and 5 per cent in 2004. The GST rate was raised to 7 per cent in 2007. It is levied on :— � Goods and services supplied in Singapore by any taxable person in the course or furtherance of a business; and � Goods imported into Singapore by any person. In general, a supply is either taxable or exempt. A taxable supply is that one which is taxable at standard rate or zero rate. Only a standard rated supply is liable to 7 per cent. Zero-rating a supply means applying GST at 0 per cent for the transaction. A GST registered trader need not charge GST on his zero-rated supplies, but he is, nevertheless, allowed a credit of the tax he has paid on his inputs. In Singapore, only ‘export’ of goods and ‘international’ services are zerorated. If a supply is exempt from GST, no tax is chargeable on it. A GST registered trader does not charge his customer any GST on his exempt supplies. At the same time, he is not entitled to claim input tax credits for GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 27
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