GST or Goods and Services Tax is a new taxation system which shall replace the existing complex system of indirect tax structure implemented in the country that is ridden with hidden costs. Before understanding the GST, first we should understand the indirect tax system implemented in India at present. GST will be a destination-based tax. This implies that all the GST collected will ordinarily accrue to the State where the consumer of the goods or services sold resides.
Presently, the Central Government levy excise duty on manufacturing and service tax on the various services. These tax collected and retained by the Central Government. State Governments levy sales tax or VAT (value added tax) on sales of goods. Also Central Sales Tax (CST) is levied on Inter-State sale of goods by the Central Government, but CST is collected and retained by the States. Apart from this, many States levy Entry Tax on the entry of goods in the local area. This tax system is quite complex. Also credit of excise duty and service tax paid by the manufacturer is not available to the traders, further, no credit of state VAT tax or CST is available in the other States. Hence, the prices get inflated to the extent of tax on tax.
GST or the Goods and Services Tax will replace all the existing taxes of VAT, Sales Tax, Excise Duty, Customs Duty, Central Sales Tax and Octroi. Some goods are also taxed differently based on whether they move inter-state or intra-state. With the introduction of GST there will be a single levy on goods and all the taxes mentioned above will go away.
The proposed dual GST envisages taxation of the same taxable event, i.e., supply of goods and services, simultaneously by both the Centre and the States. Therefore, both Centre and States will be empowered to levy GST across the value chain from the stage of manufacture to consumption. The credit of Tax paid on inputs at every stage would be available for the discharge of Tax liability on the output, thereby ensure the tax charged only on the component of value addition at each stage and there would be no ‘tax on tax’ in the country.