Dr. Sanjiv Agarwal
In a federal country like India where the power to tax domestic trade is divided between the Central Government and the State Government, the designing of a destination based GST becomes extremely complicated. A conventional national GST cannot be implemented without the States losing their fiscal autonomy.Dual GST signifies that GST would be levied by both, the Central Government and the State, on supply of goods or services. Under the Constitution, presently the taxing powers are presently split between the State and the Centre. In case of certain transactions, the power to tax is vested with the Centre and while in certain others, the power is vested with the State. Under GST, the power to tax on supply of all goods and services would be vested in the hands of both, the State and the Centre. However, in certain cases, such as the inter-state transactions, the power to tax would be vested with the Central Government, while the revenue would in some appropriate manner, get distributed to the States. Considering the dual taxation power to tax transactions under GST, the structure is referred to as Dual GST. Considering the basic framework of the constitution and keeping its structure intact, Dual GST appears to be implementable solution for India scenario.
In view of the above, the following has been recommended :-
- The GST will be a dual levy imposed concurrently by the Centre and the States, but independently. It will have two components: one levied by the Centre (hereinafter referred to as CGST), and the other levied by the States and Union Territories (UTs) [hereinafter referred to as SGST]
- Both the CGST and SGST will operate over a common base. That is, the base will be identical.
Benefits of Dual GST
The dual GST is expected to be a simple and transparent tax with one or two CGST and SGST rates. The dual GST is expected to result in:-
- reduction in the number of taxes at the Central and State level
- decrease in effective tax rate for many goods
- removal of the current cascading effect of taxes
- reduction of transaction costs of the taxpayers through simplified tax compliance
- increased tax collections due to wider tax base and better compliance
Dual GST can be divided into:
- Non-Concurrent Dual GST
- Concurrent Dual GST
How Dual GST is better than Unified GST ?
The Economic Survey 2008-09 recommended the Government to implement the goods and services tax (GST) throughout the country as a part of continuing fiscal reforms, while favouring a dual GST structure to be levied concurrently by both the Centre and State. Citing the recommendation on a dual GST by the empowered committee of State Finance Ministers, the survey said a dual GST strikes a good balance between Centre and State fiscal autonomy, along with eliminating tax cascading.
It empowers both levels of Government to apply the tax to a comprehensive base of goods and services, at all points in the supply chain. It also eliminates tax cascading, which occurs because of truncated or partial application of the Centre and State taxes.
Despite improvements in the country’s tax design and administration over the past few years, the systems at both Central and State levels are still complex. The complexities are policy related and also due to the present system of multiple rates and exemptions at State and Centre level.
The deficiencies in CENVAT (Central value added tax) and service tax are grave and need to be looked at comprehensively. For instance, CENVAT’s already narrowed base is being further eroded by a variety of area-specific exemptions. The introduction of GST would thus be opportune for deepening the tax reform process already underway and removing the present deficiencies.