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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.
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