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While
fuller details are awaited, the dual GST proposed is a
significant shift from the unified GST mooted earlier.
There will be two parts of the dual GST and these will
comprise the Federal GST and the State GST. Further, the
Federal and the State GST will, in themselves, comprise
the goods tax and the services tax.
It
appears that both the Federal GST and the State GST will
comprise multiple rates, in so far as they relate to
goods, and will comprise a single rate, in so far as they
relate to services. Full input tax credits would be
available in regard to the Federal GST and the State GST,
which will apparently operate in parallel. If this is the
case, the recommended model may not be materially
different from what is currently the position.
At
present, both excise duty and State VAT are multi-rated
with typically an 8%/ 16% two-rate structure for excise
and a typical 4%/ 12.5% two-rate structure for State VAT.
There are, of course, other rates that operate in excise
and VAT, on specific products. It is unclear whether these
existing rates will simply continue under the GST or
undergo any change.
On
the services front, it is again not clear as to whether
the Federal and the State GST will apply on the same set
of services or they will operate on a mutually exclusive
basis. Also, the present rate of service tax is 12% and it
is a moot point as to what the single rate of the Federal
and the State GST will be on services.
The
cumulative incidence of the excise duty and the State VAT
at present works out to between 26% and 28% of the retail
sales price. Clearly, there is an expectation that under
the GST, the aggregate incidence of the tax would be
significantly lower.
There
is much debate on the likely aggregate rate of the GST and
there appears to be a consensus that it may be approximate
20%. The additional benefit, apart from the reduction in
rate, is that the base on which Federal and the State GST
will be charged will be uniform and this will ensure that
there is no cascading, i.e. there is no tax on tax.
Apart
from the uncertainty on the rates, there is also a lack of
clarity as to how an assessee is expected to discharge his
obligation to the dual GST. If the base on which the two
taxes will be charged is to be uniform, it would imply
that the tax ought to be collected at a common point in
time.
Indeed,
the single most important benefit of the dual GST, from a
compliance standpoint, is that the obligation to pay both
taxes will be discharged based on a single tax document.
What is therefore required to be determined is the event,
which gives rise to the two taxes. The understanding is
that the taxes will both apply at the point of sale.
Internationally,
the GST is typically predicated on supplies of goods/
services, rather than on sales, and there are fairly
elaborate rules governing the time and place of supply. It
is very likely that the dual GST in India would also
incorporate detailed rules in relation to determination of
the taxable event and also the taxing jurisdiction.
This
aspect of jurisdiction is an important one, since the
State GST will operate within the specific boundaries of
the respective state. It will hence be important to
determine which particular state will be able to charge
and collect the applicable GST, in relation to an
inter-state transaction.
One
answer is that the state in which the goods are consumed
would be eligible to collect the GST. This is, however,
not the end of the matter since the Central Sales Tax,
which is an origin tax, is proposed to be discontinued
with the advent of the GST. This issue will need further
analysis.
There
are several other aspects of the model that need to be
clarified. Clearly, there are far more questions than
there are answers at present in relation to the dual GST.
The recommendations will be analysed at length, once they
are made public, and it is then that a meaningful and
substantive debate on the benefits and the deficiencies of
the recommended model will take place.
What
is not in doubt, however, is that the GST, warts and all,
is indeed coming. This cannot but be good news, for all
stakeholders.
Source
:
Daily News
& Analysis - Mumbai, India, dated 06/12/2007
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