Context: Gross revenues from the Goods and Services Tax (GST) crossed 1 lakh crore for the second month in a row, with 1,04,963 crore collected in November 2020. This was 1.4% higher than a year ago but a tad lower than October’s collections.
- The pick-up in GST revenues over the last two months could reduce the shortfall in GST compensation dues to the States, but economists urged caution till December to assess if the economy is truly out of the woods after the festive demand factor has played out.
Goods and Services Tax (GST)
- Started from July 1, 2017, on the recommendation of the Kelkar Task Force on indirect taxes.
- It is an Indirect tax across the country on products and services.
- Under the GST system, the tax will be levied only on the value-added at each stage.
- It is a single tax (collected at multiple points) with a full set-off for taxes paid earlier in the value chain.
What is State GST and Central GST?
- For transactions within a State, there will be two components of GST – Central GST (CGST) and State GST (SGST) – levied on the value of goods and services.
- Both the Centre and the States will simultaneously levy GST across the value chain.
- In the case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST). The IGST would be roughly equal to CGST plus SGST.
- GST is a destination-based tax.
- The tax is received by the State in which the goods or services are consumed and not by the state in which such goods are manufactured.
- Under the IGST scheme, 50% of the collections will go to the Centre (as the Central Goods and Services Tax component) and the remaining 50% will be allocated to the States and Union Territories (as the State Goods and Services Tax component).
- And, 42% of the CGST will be devolved to the States and Union Territories.
- The States/Union Territories are supposed to get 71% of the IGST (including 50% of the SGST and 21%, which is 42% of the 50% CGST).
- In GST collections, generally, the share of its different components in decreasing order is: IGST > SGST > CGST > Cess
What are the benefits of GST?
- For business and industry
- Easy compliance;
- Uniformity of tax rates and structures (ease of doing business);
- Removal of cascading;
- Improved competitiveness (through a reduction in transaction costs);
- Gain to manufacturers and exporters.
- The subsuming of major Central and State taxes in GST;
- Complete and comprehensive set-off of input goods and services; and
- phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services.
- For Central and State Governments
- Simple and easy to administer;
- Better controls on leakage (due to a robust IT infrastructure);
- Higher revenue efficiency (through a decrease in the cost of collection of tax revenues of the Government).
- For the consumer
- A single and transparent tax proportionate to the value of goods and services;
- Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
Which taxes at the Centre and State level are being subsumed into GST?
- At the Central level, the following taxes are being subsumed:
a. Central Excise Duty,
b. Additional Excise Duty,
c. Service Tax,
d. Additional Customs Duty commonly known as Countervailing Duty, and
e. Special Additional Duty of Customs.
- At the State level, the following taxes are being subsumed:
a. State Value Added Tax/Sales Tax,
b. Entertainment Tax (other than the tax levied by the local bodies),
c. Octroi and Entry tax,
d. Purchase Tax,
e. Luxury Tax, and
f. Taxes on lottery, betting and gambling.
h. Central Sales Tax (levied by the Centre and collected by the States).