This comparison is based on the recommendations of the First Discussion Paper produced by the Empowered committee of states finance ministers (hereafter referred as EC) and the Report of the Task Force on GST constituted by the Thirteenth Finance commission.
Before going on discussion we should define GST and the Objective behind it.
What is GST?
GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the Producer’s point and Service provider’s point up to the retailer level. It is essentially a tax only on value addition at each stage and a supplier at each stage is permitted to set-off through a tax credit mechanism. Under GST structure, all different stages of production and distribution can be interpreted as a mere tax pass through and the tax essentially sticks on final consumption within the taxing jurisdiction.
Objective behind GST
a) The incidence of tax only falls on domestic consumption.
b) The efficiency and equity of the system is optimized.
c) There should be no export of taxes across taxing jurisdictions. d) The Indian market should be integrated into a single common market. e) It enhances the cause of co-operative federalism.
Our comparative discussion will be based only on significant points constructing overall GST.
A dual structure has been recommended by the EC. The two components are: Central GST (CGST) to be imposed by the central and state GST (SGST) by the states.
The Task Force has also recommended for the dual levy imposed concurrently by the centre and the states, but independently to promote co-operative federalism. Both the CGST and SGST should be levied on a common and identical base.
Both have suggested for consumption type GST, that is, there should be no distinction between raw materials and capital goods in allowing input tax credit. The tax base should comprehensively extend over all goods and services up to final consumption point.
Also both are of the view that the GST should be structured on the destination principle. According to Task Force this will result in the shift from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved of the burden of goods and services tax by zero rating. Consequently, revenues will accrue to the state in which the consumption takes place or is deemed to take place.
The Task Force on GST said the computation of CGST and SGST liability should be based on the Invoice credit method. i.e., allow credit for tax paid on all intermediate goods and services on the basis of invoices issued by the supplier. As a result, all different stages of production and distribution can be interpreted as a mere tax pass-through and the tax will effectively ‘stick’ on final consumption within the taxing jurisdiction. This will facilitate elimination of the cascading effect at various stages of production and distribution.
Treatment of Central GST and State GST
Both the EC and the Task Force on GST have recommended treating the Central GST and the State GST separately. The CGST and SGST should be credited to the accounts of the centre and the states separately. Taxes paid against the CGST should be allowed to be taken as input tax credit (ITC) for the CGST and could be utilized only against the payment of CGST. The same principle will be applicable to the SGST. Cross utilization of ITC between CGST and the SGST should not be allowed.
While the Task Force on GST insisted that the full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.
According to the EC the administration of GST shall be divided into states and...
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