ederal Finge an Federal Finance I 325

xes which A NOTE ON GST

(GOODS AND SERVICES TAX)
Central taxe
laced by yeaning
12A), "Goods and Services Tax" is defined
as
ST (Good Constitution (Article 366, Clause
Indian
both, except tax on the supply of alcoholic liquor
Dy tax on supply of goods or services or
on, ax-sha or human consumption".
of and services; it applies
In India, GST applies not to production or consumption etc., goods
from the origin of the
anly to their supply. It is destination-oriented, which means that, starting
the longt in the form of a vat with input-tax
Kable item, the tax is levied at cach stage of its transaction,
the Cent of tax is expected to be on the final buyer/
gredits, till the final buyer/consumer. The incidence
the Cenlre 0ume.
e Commissa
Other Issues
een years Format and
ms dutics There is no standard format of a GST system. Each country structures its GST system in line with
COnaiuo i i own needs and constraints.
every Fin It is a widely prevalent perception that, in a modern complex ecoromy, it is next to impossible
cameefiecti o have a perfect GST system.
Therefore, at times, a country may find it feasible and advisable
te that indi-t that GST should apply to all goods and services, but in practice it
1o modify it. It may be argued
not be so. Administrative, political and
socio-economic factors may dictate that some remain
need
GST-exempt.
Administrative convenience demands that a single rate of tax should apply to all taxable items.
Constituto But in an ideal GST system, difïerent categories
of items should attract different tax rates. While
es. Ofthe
some items should attract the normal/standard rate, others like basic necessities and merit goods/
mal revedt
should be taxed at concessional rates. In contrast, some items
icle 282 Thaservices should remain tax-exempt
or

(like 'sin goods' or "bads') need to be taxed at penal rates

GST format must also be in harmony with the political set up of the country. If a country
tates onn collects them
has a unitary form of govern1ment, then only one layer of goverhment levies taxes,
and appropriates tax receipts. Consequently, one set of tax rates would do. In a country like India,
that each
having both the Central and State govemments, a Dual GST Mode is more appropriate so
taxable item can be concurrently taxed by both levels of government at same or unequal rates.

given und
Rationale
With GST, indirect taxation in India is sought to be radically reformed for reaping a heap of
nary granlks
g Plan and advantages that had eluded the country. However, GST does not apply to all indirect taxes while
segment of direct taxation is not even touched by it. A leading feature of overhauling of indirect

taation is the introduction of concurency in the case of taxes covered by GST. Earlier, both the
Centre and States could not tax the same tax base (such as production of an item) concurrently,
S are gives but under the new dispensation, they can. Furthermore, each item covered by GST is subjected to
d non Plane a single unified tax instead of several taxes.
ses certalh Over the past few decades, GST has gaincd widespread popularity throughout the world with
Over 150 countries having already adopted it in one form or the other. In conventional pattems of
ndirect taxation, a given item may be subjected to several taxes. In contrast, in GST system, it is
subjected to a single tax.
 326 ndian
in Indiz) is
overlan
claimed to have several
Dual GST Mode (the type being adopted for the econ Ent
taxation-for the administration, ono
over conventional forms of indirect Oc
advantages the consumers.
for the business sector, for the taxpayers, and for Pu
as a whole,
market for each item with a country-WIde uniformi
1. GST provides a seamless and integrated
hindrance. States don
of tax rate. Traded items can cross State
boundaries without any legal T
and destination of an item bec
indulge in tay-competition with each other. Points of origin
irelevaht factórs in deternmination of its geographical market.
2. Country-wide integrated, and thus enlarged, market promotes investment activity, and stimula
economic growth. It helps in reducing regional disparities, and creates employment and
opportunities. Both
3. GST docs not feed cost and price cascading effects of taxation. Aggregate tax payable on
mak
em does increase if it passes though additional hands before reaching its final destinatidn Pow
This promotes com etitiveness of the business sector. That way, GST is both growth-oriene with

and export-promoter
3.
4. GST lowers overall tax burden on most items and thus provides a great relief to their consurte
Conventional system of multiple indirect taxes on the same item not only leads to higher pie Item
but also impose several hidden costs on both consumers and business sector. (a)
S. Compared with multiple indirect taxes, GST is much easier to administer. Its cost ofcompliangy
for the taxpayers is also much lower. As a result, overal resource cost of the tax system anas
its other negativities are scaled down. (b)
6. GST is a great help in preventing and leakages. As a result, it not only
tax evasion
increas
revenue receipts of the government but also enables it to undertake additional welfare an (d) T
growth-oriented projects.
GST IN INDA

In India, efforts to switch over to a comprehensive Dual Mode GST had been going on for thirteei
years long time. Finally, its adoption was initiated on September 8, 2016 with the passage O
Constitution (One Hundred and First Amendment) Act, 2016. It provides for a Dual Mode GST ()
and has the following salient provisions.
1. Coverage (
As mentioned before, GST covers only a segment of indirect taxes.
At the Central level, GST subsumes the following taxes:
Central Excise Duties, including those on medicinal and toilet preparations;
Additiongal Excise Duty, including those on textiles and textile products;
Service Tax; The
Additional Customs Duty commonly known as Countervailing Duty; spe
COu
Special Additional Duty of Customs; and
Cesses and surcharges in so far as they relate to the supply of goods and services. For

At the State
a)
level, GST subsumes the following taxes:
State Value Added Tax/Sales Tax;
Central Sales Tax (levied by the Centre and collected by the States;
ian Federal Finance 327

Entertainment Tax and amusement tax (other than the those levied by the local bodies);
Octroi and Entry tax;
Purchase Tax;
Luxury tax;
Taxes on lottery, betting and gambling:
axes on advertisements and entertainment to the extent not ievied by local bodies;, and
State cesses and surcharges

2 Laws
laws
w.rt. GST. Parliament can
Both Parliament and State legislatures share the power to make
to that State
entire while laws made by a State legislature apply only
make laws for the country,
and imports lies
Power to make laws coveringinter-State trade and commerce, consignments

with the Parliament.

3. Taxable/Exempt Items
main categories.
tems covered by GST fall in the following
Collection and appropriation of these
lems concurrently tarable by both Centre and States.
(a) Parliament on the recommendations
as per laws made by
taxes are shared by Centre and States
of the GST Council.
the Centre.
ltems taxable only by the Centre. These taxes are crlected and appropriated only by
b) the States.
Items taxable only by the States. These taxes are collected and appropriated only by
(c) These include taxes
the Centre but wholly assigned to the States.
() Taxes levied and collected by
on goods and services in
the course of inter-State trade and commerce including consignments
duties are
are also counted in inter-State trade, import
of goods. Though imports from abroad
he Centre gets its share and the balance is assigned
not wholly assigned to the States. Instead,
recommendation of the
to the States. The Centre's share
is authorized by the parliament on the
GST Council.
continue to be levied by the Union but collected and appropriated
(e) Stamp duties. These duties
by the States.
are to be covered by GST
()Taxes to be subsumed later. Taxes on mineral oil and gas products
at a later stage on the recommendation of the GST Council
on alcohol for human consumption, and
excise duty on tobacco
(g) GST-exempt duty
taxes. Excise

and its products have been kept out of GST ambit.

4. Tax Rates
There is no Constitutional ceiling of tax rates on GST-covered items. Actual rates of taxes for
GST
specified goods and services are to be enacted by Parliament on the recommendations of the
council
Four Sets of Tax Rates. Indian GST system provides for the following four sets of tax rates.
(a) Two sets of tax rates in the case of iems which are 'concurently' taxable by both the Centre
and States: one set for the Centre and one for the Stuates. It means that the Centre taxes the
entire volume of a taxable item and, in addition, all the destination States tax their respective
shares of its entire volume.
 328
the Centre.
items taxable only by
is applicable to taxable iteu
(6) One set tax ofrates which
by the States. Each
taxable only
to items which
are
shares.
One set of tax rates applicable their respective
(c) States in proportions of
its destination
1S taxed only by
5. GST Council and Service
constitute the Goods
President would
Amendment provided 1het the
The Consitutional of the Amendment. The Presidg
wihin 60 days of the enacment
Council (called GST Council) is mandated to ma
said enactment. The Council
the Council within a few days the
appointed
States on the following matters:
reommendations to the Union and the which ma
the local bodies
cesses and surcharges levied by the Union, ihe States and
(a)the taxes,
be subsumcd in the GST;
subjected to, or exempted from the GST;
services that may be
(b) the goods and
of Goods and Services.
(c) model GST Laws, principles of levy, apportionment
under article 269A an
supplies in the course of inter-State trade or
commerce
(d) taxes levied on
the principles that goverm the place of supply;
rates with bands of goods and services tax;
(e) the rates including floor
to raise additional resources during any natur
() any special rate or rates for a specified period,
calamity or disaster;
levied gas products;
mineral oil and
(g) the date on which the GST be
on

which goods and services may be exempted from GST.

(h) the threshold limit of turnover below
of Arunachal Pradesh, Assam, Jammu & Kashm
(i) special provision with respect to the States
Himachal Pradesh and Utarakhands
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
and
revenue arising on account of implementation
) provision of compensation to the States for loss of
of GST for a period of five years;

(k) any other matter relating to the goods and services tax, as the Council may decide.

It was mandated that while discharging the functions conferred on th GST Council, it shall ba
guided by the need for a harmonised structure of goods and services tax and for the development
of a harmonised national market for goods and services
The Presidential Order constitution the Council also covered other matters relating to its
composition, and functioning, etc.

INTERNATIONAL EXPERIENCE

Lack of a Standard Format

It should be noted that there is no standard format of fiscal federalism having a universal
applicability. The system adopted by each country and its evolution are conditioned by relevant
historical and other circumstances. This is best illustrated several facts
by including the following,
Not all countries have a written constitution for
governing the federal financial relations. Also
the conditions and feasibility of
amending the constitution vary from country to country.
While in India there is no
concurrency of taxation and the GOI has the residual powers of
taxation, is not a universal phenomenon.
this
 Goods and Service Tax (GST) 135
13.2 GENESIS
The idea of moving towards the GST was first raised by the then
GOODS AND Union Finance Minister in his Budget for 2006-07. Initially, it was
13 SERVICE TAX (GST) proposed that GST would be introduced from 1st April, 2010. The
Empowered Committee of State Finance Ministers (EC), which had
formulated the design of state VAT, was requested to come up with
a road map and structure for the GST. Joint Working Groups officials
having representatives of the states and the centre were set up to
examine various aspects of the GST. Based on discussions within
and between it and central government, the EC released its First
Introduction
13.1 Discussion Paper o n the GST in November 2009. It spells out the
13.2 Genesis features of the proposed GST and has formed the basis for further
discussion.
13.3 Salient Features of GST
The Constitution (122nd Amendment) Bill, 2014 was introduced
in
13.4 Applicability and Mechanism of GST 19 December,
the Lok Sabha by Finance Minister, Arun Jaitley on
bill was passed
13.5 Benefits of GST 2014 and passed by the House o n 6 May, 2015. The
and the amended bill was
13.6 GST in India by the Rajya Sabha o n 3 August, 2016,2016. The bill, after ratification
passed by the Lok Sabha on 6 August,
by the states, received assent from President, out on Mukherjee
Pranab on
1st July, 2017.
8 September, 2016. The GST Scheme was rolled
13.1 INTRODUCTION
133 SALIENT FEATURES OF GST
India. There
The present structure of indirect taxes is very complex in The important features GST are the following:
are so many types of taxes that are
levied by the central and state
services. services as
governments on goods and 1. GST would be applicable o n supply of goods
or
the manufacture of goods
The introduction of Goods and Service Tax (GST) will be
an against the present concept of tax.on
reforms in India. GST o r o n sale of goods o r o n provision
of services.
important step in the field of indirect tax
into a single
amalgamates a large number of central and state taxes 2 GST would be a destination based tax as against the present
tax. It is expected to remove cascading or double taxation in a major
concept of origin based tax.
market. It is also
way and pave the way for a common national
dual GST with the centre and the
state
expected to reduce the overall tax burden on goods. Introduction of 3. It would be a
to be
GST would also make Indian products competitive in the domestic base. The GST
simultaneously levying it on a common
GST (CGST) and
and international markets. levied by the centre would be called Central
State GST (SGST).
that to be levied by the states would be called
 Macrocconomics (FYBA : SEM-I)
Goods and Service 1 ax (GSl)
settled periodically between the c e n t r s and
14. Accounts would be
136 used for payment of
would be levied on
inter-state supply that the c r e d i t ot SCST
GST (IGST) the state to e n s u r e state to the centre. Similarly
An Integrated This would be the exporting
IGST is transferred by
4. services.
stock transfers) of goods t r a n s f e r r e d by
or
(including the credit chain is
not of SGST would be
collected by the
centre and so that the IGST used for payment
state.
the c e n t r e to the importing
disrupted.
and collection of
would be treated
as inter-state
and procedures for levy
o r services 15. The laws, regulations the e x t e n t possible.
5. Import of goods IGST in addition to the be h a r m o n i s e d to
would be subject to CGST and SGST would
supplies and
applicable custom duties.

6. CGST, SGST and IGST

would be levied at rates
to be mutually
13.4 APPICABILIrY AND MECHANISM
under the aegis of the
Centre and the states
agreed upon by the
GST Council. O FG S T
alcohol for
ll goods and services except
7. GST would apply to
supply sf goods and
services.
estate. tax that w e need to pay on
human consumption, electricity and real GST is a
services is
Any person who is providing or supplying goods and
8. GST o n five specified petroleum products (crude,
petrol, diesel, liable to charge GST.
from a date to be
ATF and National gas) would be applicable 'destination
recommended by the GST Council. GST is a consumption based tax. It is based o n the
GST is applied o n goos and services at the place where
be subject to GST. In principle'.
9. Tobacco and tobacco products would the final actual consumption happens.
central excise duty.
addition, the centre would continue to levy of
both CGST GST is collected o n value added goods and services at each stage
10. A c o m m o n threshold exemption would apply to sale or purchase in the supply chain. GST paid on the procurement
and SGST. Tax payers with a turnover below it would
be exempt
a fla
of and services c a n be set-off against that payable o n the
goods
from GST. A compounding option (i.e. to pay tax at r
supply of goods or services.
without credits) would be available to small tax payers below
a certain threshold. The threshold exemption and compounding The manufacturer or wholesaler or retailer will pay the applicable
scheme would be optional. GST rate but will claim back through tax credit mechanism. The
end c o n s u m e r has to bear this tax. GST will be collected at point of
11. The list of exempted goods and services would be kept to a
minimum and it would be harmonised for the centre and the sale.
states as far as possible. The GST will be passed on till the last stage of supply chain and the
12. Exports would be zero-rated. c o n s u m e r of the
goods and service will bear the tax. This is the c a s e
even today for all indirect taxes. However, the
13. Credit of CGST paid on inputs may be used only for paying
difference is that of
under GST due to streamlining of multiple taxes and elimination
CGST on the output and the credit of SGST paid on inputs may double taxation the final cost is expected to be lower under CST.
be used only for paying SGST. In other words, the two streams
of input tax credit cannot be cross utilised, except in
specified
circumstances of inter-state suppliers for payment of IGST.
 Macroeconomics (FYBA : SEM-II)
Goods and Service Tax
(GST)
139
55 BENEFITS OF GsT Main Features of GST

The GST will make the tax structure lean and simple. GST eliminates and
1. subsumes the previous 17 central and state
indirect taxes and 23 cesses. Taxes
It can make the entire Indian market to be a unified market included in GST are
2.
1. Central taxes
which can translate into lower business costs. It can make easy : Excise duty, Central sales tax,
movement of goods across states and reduce transaction costs cesses. Surcharges and
of business. For example, under GST, octroi is abolished, 2. State taxes: VAT,
resulting in saving of time required for transport. Luxury tax, Entry tax, Entertainment tax and
Taxes on lottery

3. Since GST is not applicable on exports it can encourage exports

Tax Slabs and
from India. Examples
4 On account of streamlining of multiple taxes and elimination There are five slabs of GST besides 0 (zero) rate
of double taxes GST can bring down the cost of goods to the services.
on some
goods and
consumers.
0 (Zero) Percent GST
5. It can bring more transparency and better compliance.
Goods: Milk, curd, fresh fruits and vegetables, bread, salt, meat,
The unorganised sector will come under the GST.
6. fish, chicken, eggs, judicial papers, newspapers, printed books,
It can lead to widening of tax base. handloom, children's picture drawing/colouring books.
7.
Services: Hotels and lodges with room tariffs below 7 1000.

13.6 GST ININDIA 3 Percent GST:Gold

5 Percent GST
Goods and Services Tax (GST) was launched in India at the midnight
ofJune 30, 2017, at a grand function in the parliament, in the presence Goods: Garments below 1,000, packaged food items, footwear
of the President of India, Vice President, Prime Minister Modi,
former Prime Ministers and Speaker of Lok Sabha, members of the below 500, skimmed milk powder, branded paneer, frozen
vegetables, coffee, tea, spices, medicines, scents, pizza bread, life
present government, all the MPs, CMs and many other dignitories. boats, biogas, insulin.
GST came into effect on 1st July, 2017. Services: Railways, air transport, small restaurants.

When India started its GST journey in 1986-87, only 34 countries

12 Percent GST
had it. At present more than 165 countries have GST system. (TOI,
26 June, 2017) Goods: Garments above 7 1,000, frozen meat products, butter,
cheese, ghee, dry fruits in packed form, fruit juices, namkeen,
ayurvedic medicines, cell phones, all diagnostic kits.
 Macroeconomics (FYBA : SEM-11) Goods and Service Tax (GST)
140
hotels, business class air ticket, Coal 400/per tonne
lotteries, non-AC
Services: State-run
fertilisers, works contracts. GST network (GSTN) is created.
For filing GST returns, a

18 Percent GST
Characteristics
5 0 0 , biscuits, pasta, pastries, cameras,
Goods: Footwear over
mineral water, instant food mixes,
speakers, monitors, soaps,
CCTV, optical fibre.
GST is aimed at freeing India of its archaic, multi-layered tax
tampoons, tissues, structure and replacing it with a unified single tax rate a
and
s e r v e liquor, telecom services,
IT services, single market a c r o s s the country. GST envisages "one nation,
Services: AC hotels that
financial services, restaurants inside
five star one tax".
branded garments,
hotels It aims at making life simpler for the common man, make tax
28 Percent GST system transparent and provide accountability in the tax
collection process and curb tax evasion.
Goods: Beedies, chewing gum,
chocolate notcontaining cocoa,
Widen the tax base and increase tax revenue.
waffles and wafers, paan masala, shampoo, dishwasher, weighing
machine, ATM, automobiles, vacuum cleaners.
Increase exports as all input taxes will get refunded.
Services: Hotels with room tariffs above 7,500, 5-star hotels, Movement of goods will be faster.
cinemas.
Reduce fiscal deficit as revenue increases.
GST is sub-divided into:
Traders with annual revenue upto 20 lakh need not
1. State GST (SGST) - Levied and collected by the state
under the GST network.
register
2. Central GST (CGST) - Levied and collected by the centre
Expected to increase GDP by 1.5 to 2.0 percent.
3. Integrated GST -
(IGST) Levied and collected by the centre on
Expected to bring down the prices.
inter-state supply of goods and services and on imports.

Cesses: A
GST.
cess is an additional charge levied on a
percentage of Problems
Some examples: Many GST rates as against expected on or two rates.
Paan masala - 135% Traders and small business
people feel the system is
Tobacco products - 290% complicated, specially filing the returns.
Aerated drinks - 15% Difficult process of securing input tax credit
Benefit of input credit may not be
Luxury cars - 15% passed over to the consumers.
Inflation may increase.
Difficulties in filing online returns.
 Macroeconomics (FYBA : SEM-1) Goods and Servi Tax (GST)
raluation
143
BOX 1:TAX CREDIT
UNDER GSTT
Tax credit
The NDA government launched GST at midnight on 30 June, 2017,
to showcaseit as a revolutionary reform in independent India. Prior
system eliminates the
Under this mechanism, cascading effect of tax on tax.
when a businessman is
to this midnight session in parliament were confined to three events, tax on the
output finished good, he can reduce required to pay
() India's independence on August 15, 1947, (il) The Golden Jubilee has already
paid and pay the remaining amount the tax that he
of tax.
of Quit India Movement in 1992 and (iii) Golden Jubilee of India's Let us illustrate this with
independence in 1997.
an
example.
If afurniture manufacturer
However many observers consider this as only one among the bolts, polish and other purchases inputs like wood, nut-
inputs worth 7 1,00,000=00 at 10%
important reforms since independence. tax i.e. 10,000-00+1,00,000 7 1,10,000=00.
The introduction of GST was delaved for a long time. As the former 2 In the second
stage, he prepares the furniture, adds the
President Pranab Mukherjee put it "frivolous and opportunist (including his margin) by 7 50,000=00 where the valueof
coalitions at the centre had stalled economic development of he the furniture is 1,60,000=00 with 10% price
tax, it amounts to
country by not allowing the introduction of the goods and services T1,76,000=00.
tax (GST) for nearly 30 years." 3. In the third stage the retailer who
purchases
manufacturer for R 1,76,000=00 (including
from the
There are many slabs o r rates as against the expected single rate of tax), prices it for
T2,00,000, F 24,000=00 includes value added by the
GST. As pointed out by the Revenue Secretary, Mr. Hasmukh Adhia. retailer.
"We must go to the international standard of a single o r two GST The final purchaser gets the furniture for 2.00,00010%
rates". Finance Minister, Arun Jaitley justified the multiple GST rates (20,000) tax = 7 2,20,000.

by asking. "Would you charge taxes on a Hawai chappal and a BMW The retailer who collects R 20,000=00 tax from the final
at the same rate ? It would be inequitable".
purchaser, claims a credit of earlier taxes paid, that is
An IT infrastructure facility developed in the form of GST
was 16,000=00 (10,000 +
6,000) bearing the tax liability of only
Network (GSTN). It provides service for implementingGST for tax T4,000=00.
payers and government (Central, State and
Union Territories). It is
the interface between government and tax payers. Let us summarise the tax paid and tax credit.

Many are apprehensiye'about the preparedness and ability of GSTN

I. 1,10,000-00 tax 10,000=00
to run the system smoothly without technical glitches. It was,
II. 1,76,000=00 tax 16,000 10,000 (tax credit) =6,000
however, dismissed as initial problems which can be tackled without
III. 2,20,000=00 tax 20,000 - 16,000 (tax credit) = 4.000
much difficulties.
GST avoids the cascading effects of tax, that is tax on tax (Refer Box Total tax = 10,000 +6,000 4.000 20,000 that is 10% on

No. 1). It is, however, pointed out that such a system was in existence 2,00,000-00
under Value Added Tax (VAT).
Tax credit has to be claimed from the State or Central government
depending on whether the tax in SGST or CCST.
The tax credit avoids the cascading effect of tax on tax.