The reference of GST was first made in Indian Budget in 2006 by Mr.P Chidambaram as a single centralised indirect Tax in which tax is to collected by centre and then it is to be distributed between centre and States.This was the standrad format of Goods and service Tax. In our country states have also right to collect indirect tax hence this single centralised form of GST was rejected by the states at the initial stage itself. Hence a compromise is made on Dual GST in this respect in which both states and centre will impose and collect tax on a single transaction of sale and service in the form of State Goods and service tax "SGST" and Central Goods and service tax "CGST". Hence this Compromised format of Dual GST is going to be introduced in our country.
CENTRAL EXCISE AND GST:
Central excise is a very important indirect tax in the country and it is a central tax .It is applicable on the manufacturing stage of the goods and in GST regime it will be scrapped and CGST will come into force which is destination based tax on selling stage. Here at present taxing the sale of goods is sole right of the states and centre can not tax the sale of goods. To give power to central govt to tax the sale of goods the much talked GST amendment bill is there. This bill will give power to states to tax services also. This GST Consstitutional amendment bill is the base of GST and getting clerace from Loksabha(already cleared) , Rajya Sabha and at lease 50% of state assembelies the Central will get the power to tax sale of goods and states will get power to tax services. After this constitutional amendment the path for GST will be clear and then Central will have to prepare a Model draft of GST Act with the help empowered comittee of states and then states will form their own act on this line. That will be the basic foundation of GST in India.
THE IMPORTANCE OF RNR (REVENUE NEUTRAL RATE)
The basic question which generally asked in case of GST is that what will be the rate of tax. There will be two rates . One for states i.e. rate of SGST and second one is for centre i.e. rate of CGST. The Govt want to fix a rate where Govt can get at least the same tax which both states and centre are gettting under the present set up i.e. under VAT/CENTRAL EXCISE/SERVICE TAX etc. This is called RNR and getting exact that rate is practically very difficult since multuplicity of taxes and cascading effect will not be there under GST. At present there are news items about 27% rates but still not sure. Moderately if go for 12% for states and 12% for centre then it comes to 24%. It may be 24 or 27 but both rates are very much high compared to other GST countries. Whatever may be the rate trade industry and consumers will find it too high but even in that case govt will get same revenue ,it is uncertain. The rate of tax will play a major role in the success of GST but it will not be easy task for lawmakers to ascertain and fix it.
Threshold Limit Under GST-
The threshold limit under central excise is 1.50 Crore and in service tax it is Rs.10 Lakhs.Further in case of Vat the limit in most of the states is also Rs.10 Lakhs but in some of the states it is still Rs. 5 Lakhs. Now the question is what will be the minimum limit of turover where dealers will start paying tax and this is called threshold limit and how much it has importance under GST. At present the prposed threshold limit under GST is Rs.10 Lakhs under both the formats i.e. SGST and CGST though there was a demnd of higher Threshold for CGST considering the present central excise limit of 1.50 Crores but accepting that will hamper the centre's plan to generate expected revenue under GST since the gap of 1.40 crore is very big. Generally it is called that GST will make a financially strong Centre than state and this is based on two reasons. First is threshold and second one is the fact that now centre will get the tax up to selling stage instead of manufacturing stage which it is getting under Central Excise.
GST AND CST:
When Vat was introduced in India in 2006 the CST was considered as the biggest hurdel and it was promised that CST will be reduced by 1% every year and ultimately it will be abolished. After reducing from 4 to 3 and 3 to 2% this promise was not followed and since last several years it is there with 2%. The practical problems attached with C forms is the result of this broken promise. Now what will happen with CST in GST , may be a quetion . In GST there will be no place for CST hence manufacturing states which are generating huge revenue in this respect will loose the same. There will be a mechanism in GST to control the trade between two states and that mechanism will be called IGST- Interstate Goods and Service Tax and through this mechanism ultinate tax will go to the consumer state. IGST will not be a another (Third Tax) but it will be a complex mechanism that will ensure that one part of tax is received by Centre and other part of tax to consumer state and that will make GST a perfect destination based tax.
WHY CENTRE IS SO EAGER ON GST?
State VAT was imposed throughout India in 2006 and at that time Centre and State were on the same side of the table under the leadership of Empowered Committee of State Finance Ministers. In terms of state revenue VAT was considered as Highly Successful. GST is the next step and centre is very keen on it instead of states.
The reason is very clear but not widely discussed. States are not clear about revenue generation from GST but see there is one point which is sure that centre will certainly get a higher revenue from the GST. See at present the central indirect tax is collected in the form of Central excise and it is chargeable on manufacturing stage but in GST it will be replaced by CGST which will chargeable up to last selling stage. That will be a biggest boost to central revenue. Further at present the threshold for central excise is Rs.150 Lakhs which will be reduced to Rs.10 Lakhs under GST. These two points are the main reasons why centre is so keen on GST.
GST AND PETROLEUM PRODUCTS:
The petroleum products were kept out of the scheme of VAT and it is likely or you may take it sure that these were kept out of GST also. It means state and centre will continue to tax these products which includes diesel and petrol also as per the exising system of taxation. No input credit will be received on the tax paid on these products and further these products will not get any input credit for goods and services used by them. The decision to keep petroleum products out of GST is a conscious and combined decision of centre and state though it is widely publicized that states are more keen on it. The tax in form of Central exise and Vat form major part of indirect tax collections of centre and states and both of them don't want to disturb this favourable equation. This will further distort the already compromised and distorted format of Indian Dual GST.
By: CA Sudhir Halakhandi