GST is commonly described as indirect, comprehensive, broad based consumption Tax. The Dual GST which would be implemented in India will subsume many consumption taxes. The objective is to remove the multiplicity of tax levies thereby reducing the complexity and remove the effect of Tax Cascading. The objective is to subsume all those taxes that are currently levied on the sale of goods or provision of services by either Central or State Government. Subsumation of large number of taxes and other levies will allow free flow of larger pool of tax credits at both Central and State level.
1. PRINCIPLES OF TAX SUBSUMATION
The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:
2. CENTRAL TAXES TO BE SUBSUMED IN GST
On application of the above principles and various papers which have been released in this regard, it is deduced that the following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:
3. STATE TAXES TO BE SUBSUMED IN GST
Following State taxes and levies would be, to begin with, subsumed under GST:
4. TREATMENT OF SPECIFIC GOODS
The Central Government tabled the 122nd Constitution Amendment Bill, 2014 (‘Bill’) on the introduction of Goods and Services Tax (‘GST’) before the lower house of Parliament on December 19, 2014. On analysis of the Bill, the Bill contains the following treatment for the following specific goods:
4.1 TAX ON SUPPLY OF THE ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION
As per the proposed amendment to Constitution by the Constitution (122nd Amendment) Bill, 2014, supply of the alcoholic liquor for human consumption has been excluded from the definition of goods and service tax. New clause 12A has been inserted in article 366 which defines goods and service tax as follows:
“Goods and services tax” means any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption
Hence, the supply of the alcoholic liquor for human consumption will be out of the GST. Alcohol products for human consumption would continue to be exclusively taxed by the States. Since the Bill specifically excludes alcohol products from the ambit of GST, bringing it within GST at a future date would require another constitutional amendment. CST on inter-state sales of alcohol would also continue. It therefore appears that the empowerment of States to tax alcohol products is intended to remain unaltered in the near future.
4.2 TAX ON TOBACCO PRODUCTS
Tobacco and tobacco products would be subjected to GST. However, it can be subjected to a separate excise duty by the Centre.
4.3 TAX ON PETROLEUM CRUDE/ HIGH SPEED DIESEL/ MOTOR SPIRIT/ NATURAL GAS/ AVIATION TURBINE FUEL
The States would continue as per the current laws to impose Value Added Tax (VAT) on Petroleum Crude/ High Speed Diesel/ Motor Spirit/ Natural Gas/ Aviation Turbine Fuel on intra-state sales while inter-state sales would continue to attract Central Sales Tax (CST). These products would be transitioned into the GST regime from a future date to be notified by the GST Council. It is currently unclear from the schematics of the Bill whether States would fully discontinue collecting VAT/ CST on these products from this notified date, or whether the transition would be gradual. The Bill however also states that these products can be subjected to an excise duty imposed by the Centre; this levy would be imposed now and even after GST comes into force. Such duty can be in addition to the applicable VAT or GST imposed.
4.4 TAX ON NEWSPAPERS AND ADVERTISEMENT THEREIN
GST would be capable of being levied on the sale of newspapers and advertisements therein. This would give the governments the access to substantial incremental revenues since this industry has historically been tax free in its entirety.
5. TAXES WHICH ARE NOT TO BE SUBSUMED
GST may not subsume the following taxes within its ambit:
Author – CA Chitresh Gupta, B.Com(H), FCA, IFRS (Certified), IDT (Certified) is Author of Book “An Insight Into Goods & Service Tax” and also Managing Partner at M/s Chitresh Gupta & Associates and can be reached at M – 9910367918, Email Id: firstname.lastname@example.org