A Comparative View On Goods And Services Tax (Gst)

[Nagesh Bajaj]

This comparison is based on the recommendations of the First Discussion Paper produced by the Empowered committee of states finance ministers (hereafter referred as EC) and the Report of the Task Force on GST constituted by the Thirteenth Finance commission.

Before going on discussion we should define GST and the Objective behind it.

What is GST? 

GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the Producer’s point and Service provider’s point upto the retailer level. It is essentially a tax only on value addition at each stage and a supplier at each stage is permitted to set-off through a tax credit mechanism.
Under GST 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.

Objective behind GST

a) The incidence of tax only falls on domestic consumption.

b) The efficiency and equity of the system is optimized.

c) There should be no export of taxes across taxing jurisdictions.

d) The Indian market should be integrated into a single common market.

e) It enhances the cause of co-operative federalism.

Our comparative discussion will be based only on significant points constructing overall GST.

GST MODEL

A dual structure has been recommended by the EC. The two components are: Central GST (CGST) to be imposed by the center and state GST (SGST) by the states.

The Task Force has also recommended for the dual levy imposed concurrently by the centre and the states, but independently to promote co-operative federalism. Both the CGST and SGST should be levied on a common and identical base.

Both have suggested for consumption type GST, that is, there should be no distinction between raw materials and capital goods in allowing input tax credit. The tax base should comprehensively extend over all goods and services upto final consumption point.

Also both are of the view that the GST should be structured on the destination principle. According to Task Force this will result in the shift from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved of the burden of goods and services tax by zero rating. Consequently, revenues will accrue to the state in which the consumption takes place or is deemed to take place.

The Task Force on GST said the computation of CGST and SGST liability should be based on the Invoice credit method. i.e., allow credit for tax paid on all intermediate goods and services on the basis of invoices issued by the supplier. As a result, all different stages of production and distribution can be interpreted as a mere tax pass-through and the tax will effectively ‘stick’ on final consumption within the taxing jurisdiction. This will facilitate elimination of the cascading effect at various stages of production and distribution.

Treatment of Central GST and State GST

Both the EC and the Task Force on GST have recommended treating the Central GST and the State GST separately. The CGST and SGST should be credited to the accounts of the centre and the states separately. Taxes paid against the CGST should be allowed to be taken as input tax credit (ITC) for the CGST and could be utilized only against the payment of CGST. The same principle will be applicable to the SGST. Cross utilization of ITC between CGST and the SGST should not be allowed.

While the Task Force on GST insisted that the full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.

Exemption from GST

The EC favoured the imposition of GST to be based on ‘negative list’ and for few exemptions if necessary but didn’t provide any list of exemption. However, the Task Force also said that there shouldn’t be any exemption from CGST and SGST but if for some reason, it is considered necessary to provide exemption, the centre and states should draw a common exemption which should be restricted to the following: 

a. All public services of Government (Central, state and municipal/ panchayati raj) including civil-administration, health services and formal education services provided by Govt. schools and colleges, Defence, Para-military, Police, Intelligence and Government Departments. Public services will not include the following:

1) Railways;

2) Post and Telegraph;

3) Other commercial departments;

4) Public sector Enterprises;

5) Banks and Insurance;

6) Health and Education services.

b) Any service transactions between an employer and employee either as a service provider, recipient or vice versa.

c) Any unprocessed food article which is covered under the public distribution system should be exempt regardless of the outlet through which it is sold;

d) Education services provided by non-Governmental schools and colleges; and

e) Health services provided by non-Governmental agencies.

Tax on SIN goods (Emission fuels, tobacco products and alcohol)

According to EC alcoholic beverages should be kept out of GST. Also crude oil, diesel, petrol and ATF will not attract GST but the states will be free to levy taxes on them. While Tobacco Products will be subjected to GST with input tax credit (ITC).

The Task Force on GST has recommended that the SIN-goods comprising of emission fuels, tobacco products and alcohol should be subject to a dual levy of GST and excise. No input credit should be allowed for excise. However, industrial fuels should be subjected only to GST (both central and state) with the benefit of input credit like any other intermediate good.

 

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