The Goods and Services Tax (GST) is a comprehensive tax, should prima facie subsume all other indirect taxes such as Excise duty, Service tax, Central Sales Tax (CST), State-level Sales tax/ VAT, Octroi/ Entry tax, stamp duty, telecom license fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, etc., thus avoiding multiple layers of taxations that currently exist in India.
GST should have following basic principles e.g.:
• Uniform rate of taxation.
• Sales would be taxed under the destination based principle.
• Low costs of compliance and administration.
• A substantively common tax base for Central and state governments.
• Substantial Co-operation in tax administration between all levels of government.
And it would be levied on manufacture and sale/supply of goods and services at a national level through a tax credit mechanism i.e. tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain and allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However the end consumer bears this tax as he is the last person in the supply chain.
Such harmonization will significantly reduce the vertical imbalance between the Centre and the states by enhancing the tax base of the states. India is all set to enter into the era of new tax called GST with over 140 developed nations of the world. It is going to be the biggest ever tax reform in India.
Dual GST Model-
While a single unified GST would have been be a preferred option, but, a concurrent dual GST model has been envisaged, with a Central Goods and Services Tax (CGST) and States Goods and Services Tax (SGST) being levied, in parallel, on the taxable value of every transaction throughout the supply chain.
The dual GST model would give adequate flexibility to the States to levy taxes on a comprehensive base of goods and services at all points in the supply chain. Thus, fiscal autonomy of the States would be maintained.
It is proposed that GST will be destination based, i.e., in case of inter-State transaction no tax will be applicable in the originating State and tax will be payable in the State of consumption.
The Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.
GST would have three components –
- Central GST (CGST) – To be administered by the Centre
- State GST (SGST) – To be administered by the State Governments
- Inter-State GST (IGST)- To be levied on inter-State trade and administered and collected by the Centre. The proceeds would be transferred accordingly.
A separate legislation would be drafted for Central GST. Each State would have its own legislation to levy and collect SGST. The basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc., would be uniform across these statutes as far as practicable.
Accounts and GST Credit-
The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. It would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited).
Full input credit system would operate in parallel for the Central GST and the State GST. Taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.
A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and