Goods and Services Tax Goods and Services Tax (GST) refers to the single unified tax created by amalgamating a large number of

Central and State taxes presently applicable in India. The latest constitution Amendment Bill of December 2014

made in this regard. As per that, GST means any tax on supply of goods, or services, or both, except taxes on

supply of the alcoholic liquor for human consumption. And here, services are defined to mean anything other

than goods.

Implementation of GST is one of the major indirect tax reforms in India and is expected to be put in place by

April 2016.

Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution of

India with almost no overlap between the respective domains.

The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human

consumption, opium, narcotics etc.) while the States have the powers to levy tax on the sale of goods.

In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is

collected and retained entirely by the States. As for services, it is the Centre alone that is empowered to levy

service tax.

Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their

importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs.

This duty counterbalances excise duties, sales tax, State value added tax (VAT) and other taxes levied on the

like domestic product. Introduction of the GST would require amendments in the Constitution so as to

concurrently empower the Centre and the States to levy and collect the GST.

Advantages of GST

The Good and Services Tax (GST) qualifies for these four canons in a better manner. By amalgamating various

taxes into a single tax, GST would mitigate cascading or double taxation (tax upon tax situations) in a major way

and pave the way for a common national market.

If the benefits are passed on fully, for consumers, this would mean 25%-30% reduction in the prices they pay,

as tax burden on goods comes down. This can reduce the overall costs of production and hence, introduction of

GST would also make Indian products more competitive in the domestic and international markets, with

beneficial effects on economic growth.

According to the implementing agency, Central Board of Excise and Customs (CBEC), this tax, because of its

transparent character, would be easier to administer. Union Budget 2014-15 admitted that GST will streamline

the tax administration, avoid harassment of the business and result in higher revenue collection, both for the

Centre and the States.

GST also helps in better tax collections, better tax compliance, less cases of tax evasion and litigation, more

transparency, less harassment and corruption, according to Union Finance Minister, Shri Arun Jaitly.

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GST would replace the following taxes currently levied and collected by the Centre:

1. Central Excise duty

2. Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act 1955,

3. Additional Excise Duties (Goods of Special Importance)

4. Additional Excise Duties (Textiles and Textile Products)

5. Additional Customs Duty (commonly known as Countervailing duties or CVD)

6. Special Additional Duty of Customs (SAD)

7. Service Tax

8. Cesses and surcharges in so far as they relate to the supply of goods and services

9. Taxes on the sale or purchase of newspapers and on advertisements published therein.

State taxes that would be subsumed within the GST are:

1. State VAT/ Sales Tax

2. Central Sales Tax (levied by the Center and collected by the States)

3. Luxury Tax

4. Octroi - a local tax levied on certain articles, such as foodstuffs, on their entry into a city/district.

5. Purchase Tax

6. Entertainment Tax which are not levied by the local bodies; i.e. panchayats, municipalities and District

councils of autonomous districts can impose taxes on entertainment and amusements

7. Taxes on general advertisements

8. Taxes on lotteries, betting and gambling

9. State cesses and surcharges insofar as they relate to supply of goods or services

GST does not subsume stamp duties and custom duties.

The salient features of GST are as under:

i. GST comes under the broad spectrum of what is known as Value Added Tax which provides for input

credits and taxes only the value addition that happened in the process of production / provision of

service.

ii. GST would be applicable on supply of goods or services as against the present concept of tax on the

manufacture or on sale of goods or on provision of services.

iii. GST would be a destination based tax as against the present concept of origin based tax. i.e, tax is

imposed at the point of consumption.

iv. The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply

of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds

of IGST will be apportioned among the States.

v. CGST and SGST would be levied at rates to be mutually agreed upon by the Centre and the States.

vi. Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST

paid on inputs may be used only for paying SGST. In other words, the two streams of input tax credit

cannot be mixed except in specified circumstances of inter-State sales.

vii. Tobacco and tobacco products would be subject to GST. In addition, the Centre could continue to levy

Central Excise duty and the States can levy sales tax / VAT.

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viii. Exports would be zero-rated.

ix. Import of goods or services would be treated as inter-State supplies and therefore, would be subject to

IGST in addition to the applicable customs duties.

x. The list of exempted goods and services is attempted to be kept to a minimum and it would be

harmonized for the Centre and the States as far as possible.

The Chief Economic Advisor Arvind Subramanian led panel on 4 December 2015 submitted its report on Possible

Tax rates under Goods and Services Tax (GST) to Finance Minister Arun Jaitley.

The commission recommended standard rate for GST at 17 to 18 percent, the rate at which most products would

likely be taxed. The Committee has suggested doing away with a proposal to levy a one percent inter-state tax

on transfer of good.

The committee excluded real estate, electricity and alcohol and petroleum products while calculating tax rates

but has suggested bringing them under the ambit of GST soon.

Highlights of Recommendations

It recommended a range of 12 to 40 percent for various products and services.

Revenue Neutral Rate (RNR) proposed at 15-15.5% (Union and states combined).

Include petroleum and alcohol in GST regime.

Impact on inflation expected to be minimal.

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