FAIRFIELD INSTITUTE OF MANAGEMENT & TECHNOLOGY

Why is GST being opposed by states?

Goods and Services Tax

Sub code: 309

Submitted to: Submitted by:

Mrs. Kiran Yadav Name: Sugreev kumar

Enrollment no: 02190101719
Course: BBA (G)

Semester: Vth Semester

Section: A
Why is GST being opposed by states?
 INDEX
S.NO TOPIC P.NO

2 What is GST? 4

3 GST- taxes subsumed, products exempted 4

4 Pre-GST Tax Regime 5

5 How GST works 6

6 Effect of GST in states and GST being opposed by State 7-8

7 Reasons of GST being opposed by State 8-9

6 OBJECTIVE 10

7 CONCLUSION 11

8 BIBLIOGRAPHY 12
What is GST in India?

GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many
indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service
Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July
2017. GST is a single domestic indirect tax law for the entire country.

 GST is a comprehensive value added tax on goods and services.

 It is collected on value added at each stage of sale or purchase in the supply chain.
 No differentiation between goods and services as gst is levied at each stage in the
supply chain.
 Seamless input credit throughout the supply chai
 At all stages of production and distribution, taxes are pass through and tax is borne by
the final consumer.
 All sectors are taxed with very few exceptions/exemptions.

Taxes subsumed in GST

o Excise duty
o Additional Excise duty
o Excise duty under medicinal and toilet preparation act
o Service act
o Additional custom duty commonly known as countervailing duty(CVD), special
additional duty(SAD)
o Surcharges
o CENVAT

Product and Services excluded out of GST

o Petroleum product
o Alcohol product
o Tobacco product
o Electricity
Pre-GST Tax Structure Regime

Under the previous indirect tax regime, both Centre and States levied and collected taxes on
goods and services separately. The tax collected at each level of authority was as per the
respective subjects enumerated in the Union and State Lists. In respect of goods, the Centre
had powers to levy tax on the manufacture of goods except alcohol for human consumption,
narcotics etc. Whereas the State governments had powers to levy tax on the sale of goods. In
respect of Services, only the Centre had the power to levy and collect Service Tax.

Hence, Central Excise, Customs and Service Tax were the three main components of indirect
taxes for the Central Government. While VAT and Central Sales Tax (CST) were the major
taxes for the State Governments along with Octroi, Entertainment Tax etc.

Such multiplicity of taxes gave way to multiple taxable events. In such a scenario, taxes were
levied by different authorities on the same subject or transaction. Moreover, taxes paid on
input goods could not be set off against the output tax payable on services or vice versa. Also,
there was non-availability of set off against other State or Central Government levies. All this
resulted in cascading of taxes that ultimately increased the cost of goods.
How GST works now

A product has to go through different stages before it reaches the end consumer, and there are
several taxes applicable throughout this process. However, this situation will change in the
GST regime.

Here’s an illustration to understand how:

Stage 1: Manufacturing

Take apparel manufacturing as an example and 10% as the GST applicable.

The manufacturer buys raw material worth INR 500 that is inclusive of the GST of INR
50 (10% of 500).

He then adds his own value of INR 50 to the materials during the manufacturing process.
This brings the gross value of the product to INR 550.

Now, the total tax amount on the output of the apparel comes to INR 55 (10% of 550) In the
current tax system, the manufacturer would be required to pay a tax of INR 55; however,
under GST he can set some of his tax off as he has already paid it while purchasing the raw
materials. Therefore, the final GST that the manufacturer will incur will be of INR 5 (total tax
amount till now minus the tax he has already paid) i.e. INR 5 (55-50)

Stage 2: Wholesale

Here, the apparel is passed from the manufacturer to the wholesaler at a gross value of INR
550 that is inclusive of the GST of INR 55 (10% of 550). The wholesaler then adds his value
(his margin) of INR 50 making the total INR 600 (550 + 50). This brings the total tax amount
on the final to INR 60 (10% of 600). Like the manufacturer, the wholesaler too can set off
this tax amount with the tax that he has already paid for while purchasing the goods from the
manufacturer. Thus, the final GST for the wholesaler would be INR 5 (60 – 55)

Stage 3: Retailer

In this final step, the retailer buys the apparel from the wholesaler at a gross value of INR
600 that is inclusive of the GST of INR 60 (10% of 600). He then adds his value or margin of
INR 50 making the total cost of the goods INR 650. The GST applicable here is INR
65 (10% of 650), but since the retailer has already paid a tax while purchasing the goods, he
can set it off. Thus, the final GST incidence for the retailer would be INR 5 (65 – 60).

At the end, since the retailer will sell the product at INR 650, the GST paid by the customer
would be INR 65(10% of 650) only. This number would have been much higher in our
current tax structure.

Effect of GST in States

In the pre-gst regime, multiple indirect taxes were levied by centre as well as state
governments. And multiple taxes were being paid to government leading Revenue to
Government but it also created complexities for both government and tax payer to calculate
their tax liability. Now, all these taxes (CST, VAT, Excise, Entertainment etc.) have been
subsumed into GST making tax compliance simple and lean. All taxes will be collected at the
point of consumption; consumers will not end up paying ‘tax on tax’ which is what happens
in the pre- gst regime.

GST being Opposed by State

In the Pre-GST regime, multiple indirect taxes were levied by centre as well as state
governments. And multiple taxes were being paid to government leading Revenue to
Government

In Pre-GST Regime Tax is levied at the place where goods are manufactured or sold, or the
place at which services are rendered but in current indirect taxation system, tax will be levied
at the place of consumption, like a destination-based tax Leading to loss of revenue to state
than used to be in previous taxation system.

So, state can have a fixed source of revenue there were few products which were exempted
from GST. They are:

o Petroleum product
o Alcohol product
o Tobacco product
 o Electricity: it is taxed now as it used to before GST. No changes were made in it

Reasons of GST being Opposed by state

 Few states suggesting that GST has led to their revenue's being impacted adversely:
The states have still not got over the angst of having lost some powers of taxation. As
now the state has no full power on tax collection. In interstate transactions the tax is
collected by both state as well as central government.
 State Worries Post-GST: As GST is the destination based tax in case of interstate sales
the revenue will accrue to the states which consume the goods. However, in Pre-GST
scenario Central sales tax as well as VAT is also charged on supply of goods, CST being
origin based tax which is replaced by Destination based tax. Due to this the
manufacturing state is going to lose its portion of revenue from interstate sales. States
autonomy has also been curtailed due to implementation of GST. Rolling of GST by
states is very challenging, at one hand it has to take care of its revenue on the other hand
state has to maintain the balanced rate on goods and services.
 States are said to have opposed any plans to initiate talks to include diesel, petrol, and
petroleum products under the ambit of Goods and Services Tax (GST) due to diesel and
petrol high rise in price.
"All states have unanimously opposed the idea as it would disrupt revenue collections for
everyone," a government official said.
With fuel prices soaring, all eyes were set on whether the government would bring diesel,
petroleum, and petroleum products under the ambit of the indirect tax as it would benefit
the people of country but will let to more loss in revenue of state.
 GST will mark erosion in the states' freedom to decide on taxes and tax rates:
According to the Constitution, the States have complete autonomy over levy of sales
taxes, which, on average, accounted for 80 per cent of their revenue. But with the GST,
which mandates a uniform rate, even this limited autonomy would be gone. Any changes
to the tax rate will need to be agreed to with three-fourth majority at the GST Council.
While states together have weightage of two-third in any decision and Centre will retain
the balance one-third. This is akin to giving the Centre veto power, which is biggest
apprehension of the states. The council will be deciding on all important aspects of the
tax, including the base, rates, allocation of tax base among the states, administrative
architecture and compliance procedures This effectively means that states together will
not be able to act on their own or take any decision, consent of the Centre will be
necessary.
 OBJECTIVE
• To develop a practice of learning new aspects of the subject and Develop a habit of
research related to the subject.

• To develop further understanding of the theories and concepts covered in the course.
 CONCLUSION
Implementation of GST by States would be most challenging job, especially keeping in view
of losses that would be suffered by most of the states. First, it losses it’s power to levy tax
and second that it will result in loss of revenue.

As it can be seen Gst brought no benefit to government in terms of revenue but reduced the
tax complexity to government also brought relaxation to people of the country’s on paying
tax. GST can be both advantageous and disadvantageous to both government as well to the
people’s.
 BIBLIOGRAPHY

BOOKS : Goods and Service tax by Girish Ahuja

WEBSITES : www. Cleartax.com

www.hindustantimes.com