Tuesday, 21 March 2017


Introduction of the Value Added Tax (VAT) at the Central and the State level has been considered to be a major step – an important step forward – in the globe of indirect tax reforms in India. If the VAT is a major improvement over the pre-existing Central excise duty at the national level and the sales tax system at the State level, then the Goods and Services Tax (GST) will indeed be an additional important perfection – the next logical step – towards a widespread indirect tax reforms in the country. Initially, it was conceptualized that there would be a national level goods and services tax, however, with the release of First.

Discussion Paper by the Empowered Committee of the State Finance Ministers on 10.11.2009, it has been made clear that there would be a “Dual GST” in India, taxation power – both by the
Centre and the State to levy the taxes on the Goods and Services. Almost 150 countries have
introduced GST in some form. While countries such as Singapore and New Zealand tax virtually
everything at a single rate, Indonesia has five positive rates, a zero rate and over 30 categories
of exemptions. In China, GST applies only to goods and the provision of repairs, replacement
and processing services. GST rates of some countries are given below. Country Australia France Canada Germany Japan Singapore Sweden New Zealand Rate of GST 10% 19.6% 5% 19% 5%
7% 25% 15% World over in almost 150 countries there is GST or VAT, which means tax on goods
and services. Under the GST scheme, no distinction is made between goods and services
for levying of tax. In other words, goods and services attract the same rate of tax. GST is a
multi-tier tax where ultimate burden of tax fall on the consumer of goods/ services. It is called as value added tax because at every stage, tax is being paid on the value addition. Under the GST scheme, a person who was liable to pay tax on his output, whether for provision of service or sale of goods, is entitled to get input tax credit (ITC) on the tax paid on its inputs.

One of the main objectives of GST would be to eliminate the cascading impact of taxes on
production and distribution cost of goods and services. The exclusion of cascading effects i.e.
tax on tax will significantly improve the competitiveness of original goods and services
which leads to beneficial impact to the GDP growth. It is felt that the GST would serve a
superior reason to achieve the objective of streamlining indirect tax regime in India which
can remove cascading effects in supply chain till the level of final consumers only when all such
above mentioned indirect taxes are completely included in GST. It is understood that alcohol,
tobacco and petroleum products will not be enclosed by GST as alcohol and tobacco are
considered as Sin Goods, and governments do not like to allow free trade on these property.

1.  With respect to Tax Threshold The threshold limit for turnover above which GST
would be levied will be one area which would have to be strictly looked at. First of all, the
threshold limit should not be so low to bother small scale traders and service providers. It also
increases the allocation of government resources for such a petty amount of revenue which may be
much more costly than the amount of revenue collected. The first impact of setting higher tax
threshold would naturally lead to less revenue to the government as the margin of tax base
shrinks; second it may have on such small and not so developed states which have set low threshold
limit under current VAT regime.

2.  With respect to nature of taxes The taxes that are generally included in GST would be excise duty, countervailing duty, cess, service tax, and state level VATs among others. Interestingly, there are numerous other states and union taxes that would be still out of GST.

3. With respect to number of enactments of statutes There will two types of GST laws, one at a centre
level called ‘Central GST (CGST)’ and the other one at the state level - ‘State GST (SGST)’. As
there seems to have different tax rates for goods and services at the Central Level and at the State
Level, and further division based on necessary and other property based on the need, location,
geography and resources of each state.

4.  With respect to Rates of taxation It is true that a tax rate should be devised in
accordance with the state’s necessity of funds. Whenever states feel that they need to raise
greater revenues to fund the increased expenditure, then, ideally, they should have
power to decide how to increase the revenue.

5.  With respect to tax management and Infrastructure It depends on the states and the union how they
are going to make GST a simple one. Success of any tax reform policy or managerial measures
depends on the inherent simplifications of the system, which leads to the high conformity with
the administrative measures and policies.


1.         An end to cascading effects This will be the major contribution of GST for the
business and commerce. At present, there are different state level and centre level indirect tax
levies that are compulsory one after another on the supply chain till the time of its utilization.

 2.        Growth of Revenue in States and Union It is expected that the introduction of GST will
increase the tax base but lowers down the tax rates and also removes the multiple point This,
will lead to higher amount of revenue to both the states and the union.

3.         Reduces transaction costs and unnecessary wastages
If government works in an efficient mode, it may be also possible that a single registration and
single compliance will suffice for both SGST and CGST provided government produces effective IT infrastructure and integration of such infrastructure of states level with the union.

4.         Eliminates the multiplicity of taxation One of the great advantages that a taxpayer can expect from GST is elimination of multiplicity of taxation. The reduction in the number of taxation applicable in a chain of transaction will help to clean up the current mess that is brought by existing indirect tax laws.

5.         One Point Single Tax Another feature that GST must hold is it should be ‘one point single taxation’. This also gives a lot of comforts and confidence to business community that they would focus on business rather than worrying about other taxation that may crop at later stage. This will help the business community to decide their supply chain, pricing modalities and in the long run helps the consumers being goods competitive as price will no longer be the function of tax components but function of sheer business intelligence and innovation.

6.         Reduces average tax burdens Under GST mechanism, the cost of tax that consumers have to bear will be certain, and GST would reduce the average tax burdens on the consumers.

7.         Reduces the corruption It is one of the major problems that India is overwhelmed with. We cannot expect anything substantial unless there exists a political will to root it out. This will be a step towards corruption free Indian Revenue Service.