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DUAL ASPECT OF GST

Meaning: The Goods and Services Tax (GST) is a comprehensive value added tax (VAT) on

the supply of goods or services. France was the first country to introduce this value added tax

system in !"# devised $y a pu$lic servant. %n %ndia& due to non consensus $etween central

and state government& the proposal is to introduce a 'ual GST regime i.e. entral and State

GST.

Dual GST: any countries in the world have a single unified GST system i.e. a single tax

applica$le throughout the country. *owever& in federal countries li+e ,ra-il and anada& a

dual GST system is prevalent where$y GST is levied $y $oth the federal and state or

provincial governments. %n %ndia& a dual GST is proposed where$y a entral Goods and

Services Tax ( GST) and a State Goods and Services Tax (SGST) will $e levied on the

taxa$le value of every transaction of supply of goods and services.

Analysis /hile the desira$ility of the reform is not in dou$t& ma+ing a transition to GST

involves not only considera$le wor+ $ut also formida$le challenges. 0nli+e in many other

countries where GST is a centralised tax& in %ndia it is levia$le $y $oth central and state

governments& according to the proposals. This implies that $oth the structure and

administration of the levy will have to emerge after detailed negotiations and $argaining $etween the centre& 1! states and the two 0nion Territories with legislatures. Given the sharp

differences in the structure of the economy and sales tax revenue (as a ratio of gross state

domestic product& or GS'2) across states& the interests of the states do not always coincide

and considera$le effort is needed to persuade them to adopt a uniform or even a $roadly

harmonised structure and administrative system for the tax.

Significant progress was made in arriving at a $road consensus on many aspects& until the 3th

Finance ommission recommended that the states should evolve a 4flawless5 or an 4ideal5 GST

(with minimum exemptions and a single rate) to $e eligi$le to receive compensation in the

eventuality of revenue loss. The states had $roadly agreed on the structure of the tax and

administrative system and the mechanism for relieving taxes on inter6state transactions. They had

$roadly agreed on the exemption list& levying the tax at two rates& and +eeping petroleum

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products out of the GST regime. For ensuring seamless input tax credit& they had agreed on a

mechanism wherein the tax levied at the stage of inter6state sale was to $e collected and pooled

separately and transferred to the destination state through a clearing house. They had also

esta$lished the GST 7etwor+ (GST7)& a special purpose vehicle with e8uity contri$utions from

the technology partner (7S'9)& and central and state governments to erect the information

technology (%T) platform to administer GST. The empowered committee had also decided on a

simplified system for taxpayers with turnover less than :s."; la+h ( they were

not re8uired to maintain detailed accounts of their transactions and merely pay ;."? tax on their

turnovers. @f course& this tax is not eligi$le to get input tax credit and $ecome a part of the VAT

chain.

*owever& the 3th Finance ommission s recommendation that states should levy 4flawless5GST to $e eligi$le to receive compensation for any loss of revenue put the entire negotiation

process on the $ac+ $urner. The pro$lem was compounded $y the central government s refusal to

pay compensation for the loss of revenue arising from the reduction in central sales tax ( ST).

ST is the sales tax levied on inter6state transactions. The tax which was levied at #? $y the

exporting state was reduced to 1? in 1;;B in preparation for the introduction of GST. The

central government had agreed to pay compensation for the loss of revenue to the states until

1; ;& when the GST was to $e implemented. /hen the central government refused to

compensate the states after 1; ;& a huge trust deficit was created and the entire negotiation

process virtually $ro+e down. The new finance minister has promised to clear the $ac+log of

dues to the states and the states have resumed the negotiation process. The finance minister has

also announced that the onstitution Amendment ,ill will $e placed in the winter session of

2arliament. These developments $ode well.