Goods and Services Tax (GST), is a tax on every economic supply in the distribution chain.

The taxable event is

‘supply of goods’ and ‘supply of services’. Any transfer of right to use goods will constitute supply of goods, and, any
supply not involving goods will be supply of service. Through a tax credit mechanism, this tax is collected on value-
added goods and services at each stage of sale or purchase in the supply chain.
The supply is sub-classified as destination and consumption based from taxation perspective. Further, the supply to
be taxed could be Business-to-Business or Business-to-Consumer depending on the feasibility in individual case.
The GST will subsume present indirect taxes of Central Excise, Customs, Central Sales tax, Service Tax under Union
List and Sales Tax, Value Added Tax, Entry Tax, etc.

WHY GST?
GST encourages an unbiased tax structure that is neutral to business processes, business models, organization
structure, product substitutes and geographical locations, A simple tax structure with only one or two rates of taxes,
Uniform single tax across the supply chain, Reduced transaction cost in the hands of the tax payers, Increased tax
collections due to wider tax base and better compliance, Improvement in international cost competitiveness of
indigenous goods and services, Enhancement in efficiency in manufacture and distribution due to economies of scale
are some of the reasons why we should go for GST introduction.

GLOBAL SCENARIO:
More than 140 countries have already introduced GST/National VAT, Most countries have a single GST rate. Typically
it is a single rate system but two/three rate systems are also prevalent depending upon the requirement of the
implementing nation, Standard GST rate in most countries ranges between 15-20%, All sectors are taxed with very
few exceptions/ exemptions, Full tax credits on inputs – 100% set off, Canada and Brazil alone have a dual VAT, US
does not have a national level VAT

FEATURES OF PROPOSED GST MODEL:

Basic Structure-Dual GST comprising Central GST and State GST, which would include both the goods tax and the
services tax, Central GST and State GST to operate throughout the supply / value chain. Taxable event to be supplies
- as against manufacture (excise) and sales (VAT), stamp duty, toll tax, passenger tax and road tax not subsumed in
GST, exports to be zero rated.
Classification-HSN to form the basis of classification of goods under Central and State GST, classification of services
based on global best practices and Indian realities
Rates-uniform rates for services, multiple rates for goods, Imports to be charged to both Central and State GST,
Excise Free Zones could continue for their life spans.
Input tax Credits ( ITC)-full credits under the Central and the State GST that will operate in parallel, cross utilization
of credits between Central GST and State GST not permitted, refund of unutilized accumulated ITC.
Inter-State transactions-goods to be taxed in the destination/importing State, services to be taxed in the State of
consumption, zero rating in the originating State.
Taxation of crude & petroleum products to be brought in GST with ITC, excise duties (without ITC) to be levied over
and above GST by both Centre & State,
OR
Only crude, motor spirit & high speed diesel be out of the purview of the GST → remaining products as per above.
Finance Commission will make recommendations in regard to petroleum products.
Treatment of services -Any economic activity which is not supply of goods is supply of services, All services to be
taxed with few exceptions, Central GST on services relatively easy to collect, State GST on services will be far more
complex – particularly on cross border services
Cross border Services-Taxed at the place of consumption of services, Difficult to determine the actual place of
effective use/enjoyment of services, Rules for place of supply of services to be framed, Currently no uniform practice
exists,Administrative convenience + convenience of the trade & industry to be factored to determine the place of
collection of service tax.
Thresholds-uniform under Central & State GST
Exemptions-common lists for Centre and States with little flexibility for States to deviate, exemption schemes
proposed to be converted to post-tax cash refund schemes.

GST RATE IN INDIA:

The combined GST rate is currently being discussed by the Centre and the EC. The rate is expected to be in the range
of 14-16 %. Once the total GST rate is determined, the states and the Centre have to agree on the CGST and SGST
rates. Today, services are taxed at 10% and the combined incidence of indirect taxes on most goods is around 20%.
The rate to be adopted would depend on the extent of coverage of GST and ability to prune exemptions.

ISSUES & CHALLENGES:

LAW CHALLENGES:
Rates-integration of a large number of Central & State Taxes and obtaining of consensus amongst States to abolish
multiple local taxes, multiplicity of taxes and tax rates
Thresholds-rationalization under Central & State GST
Taxation of Petroleum /Alcohol/Tobacco products-GST with ITC, excise duties (without GST)
Taxation of Inter-State Services-huge challenges due to its complexity
Operating a seamless input credit system-pure VAT/ no cascading
Integrating the origin based tax with the destination based GST, Uniformity across States, Proper transition from
existing tax structures
GOVT REALTED:
Standardization of systems and procedures, Uniform dispute settlement machinery, Training, Re-organization of
administrative machinery for GST implementation is the key, Building information technology backbone – the single
most important initiative for GST implementation. Protecting and balancing the present and future revenues of the
Centre and the States-commission on Centre-State Relations (CCSR), views from Trade & Industry. Impact on
backward States-safeguarding the interests of less developed States with lower revenue potential.
Being a relatively new entrant, India has the opportunity to learn from the mistakes of other countries and
formulate a faultless GST system. System’s smooth run has to be facilitated with e-invoicing, e-payment, e-filling
and e-auditing. The ideal system would be one with broad base, single rate, minimum exemptions, wide definition
of taxable person and a high threshold. It will be advisable to substitute exemptions by low standard rate.
Also it would be crucial for India to have an independent agency which could arbitrate and give binding rulings on
centre-state/inter-state disputes over jurisdictions and the right to tax proceeds. This is expected to bring
transparency and corruption free tax administration.