2.5.5. Issues around GST

The GST or the Goods and Services Tax aims to create a common market throughout India without any taxes on inter-state movement of goods. The 101st Amendment in the constitution and the introduction of GST in the Indian Economy has significantly changed the landscape of financial relations between the centre and states. It is a step towards one nation, one indirect tax regime.

GST is Single tax on supply of goods and services, right from the manufacturer to the consumer. It is a destination based tax unlike the present taxation scheme which is origin based. It would prevent cascading of taxes as final consumer will bear only the GST charged by the last dealer in the supply chain. Both centre and state has relinquished certain taxation powers towards rolling out of GST. For example – Service Tax of the centre and Sale Tax of State is subsumed under GST.

In this existing structure, there are two components of GST – Central GST and State GST. Both CGST and SGST will be simultaneously levied across the value chain, both on goods and services. Some goods are exempted from GST such as real estate, alcohol, electricity, petroleum and its products. Further, IGST comes into picture when there is an inter-state transfer of goods and services.

GST entailed a surrender of significant amount of fiscal autonomy by the Centre and, especially the states, as rates are decided by the GST council rather than individual state or central governments. Further, there were certain concerns raised by the states in terms of loss of revenue by manufacturing states and capacity of states to tax services is not known. But some of the concerns were addressed by various measures:

♤ GST council which has the final say on decisions regarding GST, has 2/3rd members from the states, thereby showing a accommodative stance with respects to states demands.

♤ Although it may appear that the goods and services tax (GST) hasn’t given a big boost to states governments’ tax revenue so far, but there’s little reason for them to complain. The constitutionally guaranteed compensation mechanism under GST ensures, in effect, a 14% annual growth in the states’ revenue. A cursory look at their past performance will reveal that most states had previously registered growth rates much lower than 14% from the taxes that later collapsed into GST.

♤ Further, this compensations will be given for five years.