V. Gangadharan

The Goods and Service Tax (GST), a landmark in the history of tax reforms, after the implementation of VAT, has started its journey by the Finance Minister’s public endorsement of the dual GST model.

The dual GST model will comprise of a Central GST and State GST. The Centre and the State will each legislate, levy and administer the Centre and State GST, separately. GST centres round evolving an efficient and harmonize consumption tax system in the country.

For the purpose, amendments to the Constitution are necessary as federal GST would extend beyond manufacturing stage and the States would be able to collect taxes on services.

1. France was the first country which introduced a comprehensive goods and service tax Regime in 1954. Today, it has spread to about 150 countries. The Goods and Service Tax (GST) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at a national level. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end the long standing distortions of differential treatments of manufacturing and service sector. The introduction of goods and services tax will lead to the abolition of taxes such as octroi, Central Sales Tax, State level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and eliminate the cascading effects of multiple layers of taxation. GST will facilitate seamless credit across the entire supply chain and across all States under a common tax base.

As we have parallel systems of indirect taxation at the Central and State levels, each of the systems needs to be reformed to eventually harmonize them. The central excise duty should be converted into a full fledged manufacturing stage VAT on goods and services and the States sales tax systems should be transformed into a retail stage destination based VAT, before the two are integrated. At the central level, beginning has been made by converging widely varying tax rates and extending input tax credit to convert excise duties into CENVAT.

2. Through a tax credit mechanism, GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. But being the last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax. Many countries have a unified GST system. However, countries like Brazil and Canada follow a dual system wherein GST is levied by both Federal and State or provincial Governments. In India, a dual GST is being proposed wherein a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.

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