1. INTRODUCTION
Tax base of Goods and Service tax (“GST”)
would be very wide and would comprehensively extend over all goods and
services up to the final consumer point. GST would have two components:
- Central Goods and Service tax (“CGST”) – It would be levied by the Centre; and
- State Goods and Service tax (“SGST”) – It would be levied by the States.
The
basic features of law such as chargeability, definition of taxable
event, taxable person, taxable transaction, basis of classification all
would be uniform for both CGST and SGST, i.e. the basis of taxability
would be same for both CGST as well as SGST, thereby wiping out all the
disputes currently taken up by VAT/Sales tax authorities and Service tax
authorities to tax a single transaction.
2. GST LEGISLATION
After carefully reading the Pranab Mukherjee, Minister of Finance in Budget speech of 2009-2010 and first discussion paper of empowered committee we deduce that there would be one act for levy of central tax i.e. CGST & one act for levy of state tax in each state i.e. SGST. Therefore, there would be multiple tax statues in India for levy of one GST. This could again bring same problems in GST tax structure that existed in VAT tax structure.
3. TAXES THAT WOULD BE FOREGONE
GST would take place of all the major indirect taxes currently applicable in India.
Central Taxes that would be subsumed under the GST:
a) Central Excise Duty – Levied under Excise Act,1944;
b) Additional Excise Duties – Levied under Excise Act,1944;
c)
The Excise Duty levied under the Medicinal and Toiletries Preparation
Act – Levied under Medicinal and Toiletries Preparation Act,1955;
d) Service Tax - Levied under Chapter V of Finance Act,1994;
e) Additional Customs Duty, commonly known as Countervailing Duty - Levied under Customs Act,1962;
f) Special Additional Duty of Customs - 4% - Levied under Customs Act,1962;
g) Surcharge, and - Levied under on any of above taxes or any other surcharges; and
h) Cess - Levied under on any of above taxes or any other surcharges.
Following State taxes and levies would be subsumed under GST:
a) VAT – Levied by any state in India;
b) Sales tax – Levied under Central Sales Tax Act, 1956;
c) Entertainment tax (unless it is levied by the local bodies) - Levied by any state in India;
d) Luxury tax – Levied by any state in India;
e) Taxes on lottery, betting and gambling. – Levied by any state in India;
f)
State Cesses and Surcharges as far as they relate to supply of goods
and services. - Levied under on any of above taxes or any other cesses
and surcharges; and
g) Entry tax not in lieu of Octroi – Levied by any state in India.
All
the taxes listed above would be consolidated under new GST regime
thereby reducing compliance costs of taxpayers and administrative costs
of the government. However there are few other indirect taxes that may
or may not be summed under GST regime as there is no consensus among
States themselves or between Centre and States.
4. TAX RATES
Until
now, there has been no official announcement regarding GST rate for India. There are disputes among State heads and Central government
regarding fixation of GST rate.
5. VALUATION
GST
would be levied on value of goods and services transacted. Valuation
provision would be common for both CGST as well as SGST. There is no
specific information on this issue in any of the reports except that
provisions would be simpler and more transparent.
6. INTER-STATE TRANSACTIONS
Centre would levy Inter-state Goods and Service tax (“IGST”),
which would be CGST plus SGST on all inter-State transactions of
taxable goods and services. The inter-State seller will pay IGST on
value addition after adjusting available credit of IGST, CGST, and SGST
on his purchases.
7. TAX CREDIT
Credit
would be admissible in respect of both the components of GST i.e. CGST
& SGST. CGST and SGST are to be treated separately for the purpose
of tax credit. Scheme of tax credit would be as follows:
(a)
Taxes paid against CGST shall be allowed to be taken as input tax credit
for the CGST and could be utilized only against the payment of CGST.
(b)
Taxes paid against SGST shall be allowed to be taken as input tax
credit for the SGST and could be utilized only against the payment of
SGST.
Cross utilization of input tax credit between the CGST and the SGST would not be allowed except under the IGST model.
8. CONCLUSION
The
problem of the present distortionary indirect tax system can be
effectively addressed by shifting the tax burden from production and
trade to final consumption. The introduction of the GST will bring about
a macroeconomic dividend by reducing what have been called the
“negative grey area dynamic effects” of cascading taxation. The
‘flawless’ GST subsumes all indirect taxes on goods and services, which
is the most elegant method of taxing consumption. Under this structure,
all different stages of production and distribution can be interpreted
as a mere tax pass-through, and the tax essentially ‘sticks’ on final
consumption within the taxing jurisdiction
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