What is GST
‘G’ – Goods‘S’ – Services
‘T’ – Tax
“Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level. GST is a tax on goods and services with value addition at each stage having comprehensive and continuous chain of set-of benefits from the producer’s/ service provider’s point up to the retailer’s level where only the final consumer should bear the tax.”
Introduction of a GST to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in production and distribution of goods and vice versa. Separate taxation of goods and services often requires splitting of transaction values into value of goods and services for taxation, which leads to greater complexities, administration and compliances costs. Integration of various taxes into a GST system would make it possible to give full credit for inputs taxes collected. GST, being a destination-based consumption tax based on VAT principle, would also greatly help in removing economic distortions and will help in development of a common national market.
Justification of GST
Despite the success of VAT, there are still certain shortcomings in the structure of VAT, both at the Centre and at the State level.
A. Justification at the Central Level
- At present excise duty paid on the raw material consumed is being allowed as input credit only. For other taxes and duties paid for post-manufacturing expenses, there is no mechanism for input credit under the Central Excise Duty Act.
- Credit for service tax paid is being allowed manufacturer/ service provider to a limited extent. In order to give the credit of service tax paid in respect of services consumed, it is necessary that there should be a comprehensive system under which both the goods and services are covered.
- At present, the service tax is levied on restricted items only. Many other large number of services could not be taxed. It is to reduce the effect of cascading of taxes, which means levying tax on taxes.
B. Justification at the State Level
- A major defect under the State VAT is that the State is charging VAT on the excise duty paid to the Central Government, which goes against the principle of not levying tax on taxes.
- In the present State level VAT scheme, Cenvat allowed on the goods remains included in the value of goods to be taxed which is a cascading effect on account of Cenvat element.
- Many of the States are still continuing with various types of indirect taxes, such as luxury tax, entertainment tax, etc.
- As tax is being levied on inter-state transfer of goods, there is no provision for taking input credit on CST leading to additional burden on the dealers.
Following questions arises:
- At what point of time, the tax will be levied?
- Will TE covers both i.e. supply of goods and rendering of services?
- What will be the nature of TE?
- Will it not involve new language and terminology?
- What impact the change in TE can have?
- GST is proposed to be levied by both the CG and SGs. How will it be defined under CGST and SGST?
Subsuming of Existing Taxes
The sub-sumation should result in free flow of tax credit in intra and inter-State levels so that unrelated taxes, levies and fees are not be subsumed under GST.
Taxes that may or may not be subsumed
There are few other indirect taxes that may or may not be subsumed under the GST regime as there is no consensus among States and Centre & States –
- Purchase tax
- Stamp Duty
- Vehicle Tax
- Electricity Duty
- Other Entry taxes and Octroi
