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GST: Will it be single tax to replace Central & State indirect Taxes?

Goods & Service Tax (GST) – One Question A Day by CA Sudhir Halakhandi – PART 1

Q. The talks on GST is going on in the News papers very prominently and I came to know that GST will be a single tax replacing all the Central and State indirect Taxes and we will require to deposit a single tax in place of VAT, Central Excise and Service Tax. Please explain the new system Sir.

CA SUDHIR HALAKHANDI:-

What you have described is the “Standard format” of Goods and service tax and this was the format which was initially presented by the Government in 2006 and 2007. Let us see the relevant part of the speech of the erstwhile Finance Minister Mr. P. Chidambaram:-

Budget speech – 2006

155. It is my sense that there is a large consensus that the country should move towards a national level Goods and Services Tax (GST) that should be shared between the Centre and the States. I propose that we set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. People must get used to the idea of a GST.

Budget speech -2007

116.  I wish to record my deep appreciation of the spirit of cooperative federalism displayed by State Governments and especially their Finance Ministers. At my request, the Empowered Committee of State Finance Ministers has agreed to work with the Central Government to prepare a roadmap for introducing a national level Goods and Services Tax (GST) with effect from April 1, 2010.

These two statements made by the then Finance Minister of India in 2006 and 2007 were without any basis and created a false impression in Trade and Industry that a “Single National Level Goods and service tax” is going to be introduced in our country and unfortunately this false impression is also there as it is reflecting from your question.

In our country the system of governance is “Federal” and both states and centre has the power of imposing and collecting indirect taxes. Centre is collecting Central Excise, Service Tax etc. and states are collecting VAT, Entry tax and Central Tax.

Hence the idea of Single National Level GST was rejected by the states at the initial stage of discussion and new compromised formula was emerged in which both the centre and the states will charge GST separately on a single transaction. States will collect State Goods and Service Tax (SGST) and Centre will collect Central Goods and Service Tax (CGST) and further a new and complicated system of collection of Tax on interstate transactions will be introduced in form of Interstate Goods and Service tax (IGST) to transfer the revenue on interstate transactions to the consuming state.

View Comments (3)

  • I have had opportunity of discussing GST with officers in Central Excise department as well as officers in Commercial Tax departments of states. Nobody is clear as to who will do what and what will be the procedures of collection. The biggest problem faced by the trade & Industry today is handling various agencies in tax departments and multiplicity of assessment/ audit/ enforcement etc. If they will have to deal with the same agencies even after GST replaces present system, what relief will be there for trade & industry.

    Today a Trader has to deal with only Commercial Tax authorities, afterwards they may have to deal with authorities handling CGST and those handling SGST. The complexities of IGST will add to their woes.

    Let us hope the Union and State Governments keep these aspects in mind before implementing new tax regime.

  • Presently dealers are facing problems at various stages for availing input of VAT paid to a state VAT authorities. Availabilty of inut of taxes paid under IGST in the consuming state is area of concern. This requires upgradation of IT of all tax authorities, transpancy and compliance by all concerned.

  • Greetings…!!

    A very good article -with ‘useful’ information in a very illustrative & detailed manner, with 'simplest’ expamples.

    Regards,
    Ajay M Pujara
    Baroda, Gujarat

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