BASIC CONCEPTS OF GST (PART-8)
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 17-2-2016
The need of GST can be explained by way of the following reasons or weaknesses in the present system –
* In present tax structure there is no system of providing input credit mechanism in between taxes levied by state and the centre. Thus, cascading effect arises.
* There are various definitional issues related to manufacturing, sale, service, valuation etc arises. These needs to be rationalized.
* Several transactions take the character of sales as well as services, thus there is complexity in determining the nature of transaction.
* The mechanism of imposing taxes, exemptions, abatements, other benefits are different in state and centre.
* Existing laws have resulted in significant number of issues related to interpretation / tax disputes.
* Credit mechanism is also very narrow with several conditions alongwith procedural formalities which makes the comp
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for manufacturers/ dealers. Moreover, no step has yet been taken to capture the value-added chain in the distribution trade below the manufacturing level in the existing scheme of CENVAT. The introduction of GST at the Central level will not only include comprehensively more indirect Central taxes and integrate goods and service taxes for the purpose of set-off relief, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the distributive trade and increased compliance.
In the existing State-level VAT structure there are also certain shortcomings as follows. There are, for instance, even now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., and yet not subsumed in the VAT. Moreover, in the present State-level VAT scheme, CENVAT load on the goods remains included in the value of goods to be taxed under State VAT, and contributing to that extent a casca
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has so long been only with the Centre. A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for (a) additional power of levy of taxation of services for the States, (b) system of comprehensive set-off relief, including set-off for cascading burden of CENVAT and service taxes, (c) subsuming of several taxes in the GST and (d) removal of burden of CST. Because of the removal of cascading effect, the burden of tax under GST on goods will, in general, fall.
The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and consumers through a more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several taxes in the GST and phasing out of CST. With the GST being properly formulated by appropriate calibration of rates and adequate
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