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Under this
model, Centre will levy IGST on all inter-State
transactions. Transfer of funds will essentially happen
between a State and the clearing agency at the Centre.
Fund transfer between one State and another will not be
required, a senior State government official privy to
the discussions on this model at the Empowered Committee
of State Finance Ministers on VAT said.
The IGST model meets the requirement of destination
system, offers continuous chain of GST with minimum
refund, has equal treatment of intra-state and
inter-state transactions and does not require that much
computerisation at the State level, the official said.
All inter-State dealers would be e-registered and the
number road check-posts will also be minimised.
In the IGST model, the Centre will play a dominant role
through the clearing agency for settling the inter-State
transactions. As each state is an importer as well as an
exporter, only the net sum will be transferred. This
will be calculated by the clearing house every month.
“We are taking advantage of the netting principle,” the
official said.
The Centre will levy IGST on all inter-State
transactions. IGST is combination of the Central
component of the GST (CGST) and State component of GST.
The seller will pay IGST on the value addition after
adjusting the available credit on IGST, CGST and SGST on
his purchases in that order.
The exporting State will transfer to the Centre the
credit of State component of GST used in the payment of
IGST and the Centre will transfer to the importing state
the credit of IGST used in the payment of State
component of GST.
“The idea is we are coming with a new concept of
combining the CGST and SGST. Importing dealer will claim
credit of IGST while clearing his tax liability. The
inter-state seller pays the IGST after he takes the
credit of input SGST. The credit of SGST so availed
becomes due to the Centre from the exporting state. So
the exporting state gives the credit to the Central
Government. On the other hand, the inter-state purchaser
uses the IGST credit to pay his IGST, CGST or SGST
liability”, the official said.
The advantage is that a purchaser can use the IGST
credit to settle whatever liability he has to settle his
tax dues. Otherwise, he had to make upfront payment and
wait for refunds. The chain became cumbersome.
Till the last meeting of the Empowered Committee in
mid-September, the State finance ministers were looking
at the reverse charge model. However, they have now
given up that model and agreed to pursue with the IGST
model. Indications are that the IGST model will be
discussed at the meeting between State Finance Ministers
and the Union Finance Minister, Mr Pranab Mukherjee on
October 8.
Source
: Hindu Business Line, India, dated 30/09/2009
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