Goods and Services Tax

Goods and Services Tax(GST) is a comprehensive indirect tax regime which will subsume all indirect taxes such as excise duty, services tax, Value Added Taxes, sales tax etc. into a single entity. GST would be applicable on the supply of goods and services and is a destination-based tax system. GST is an unified taxation system wherein the centre and the states would legislate, levy and administer the taxes concurrently in the form of Central GST and the State GST. However, the taxes would be levied on a common base.

There are many advantages of rolling out the GST system of taxes. First, it will help in the creation of unified national market. It is because the goods would be charged uniformly across the states. For instance, commodity X will cost the same in states A,B or C. This will facilitate the ease of doing business and would incentivize the companies for greater investment. Second, there would be no cascading effect of taxes. The absence of multiple taxation on products by the centre as well as states would benefit the consumers eventually due to lowering of prices. It is estimated that the roll out of GST would spur the GDP growth rates by an additional 1-2 percent.

However, not all the states are satisfied with the GST model of taxes. The states are reluctant to include money-spinning sectors like Petroleum and alcohol products in the ambit of GST. As of now, the centre has agreed to exclude only alcohol from the GST system. Moreover, another problematic issue is that of compensation. As a result of abolition of Central Sales Tax(CST), the states are demanding adequate compensation from the Central Government. The Central Government, has assured the affected states that it would compensate the required amount fully(100 percent) for three years, 75 percent on the fourth year and 50 percent for the fifth year.

However, in the long run, GST would be beneficial both for the Central Government as well as State Government. The VAT regime introduced in the early 2000s too faced similar apprehensions from the states, but it ultimately benefited them in the long run.  However, the concerns of manufacturing states like Tamil Nadu in the form of reduced revenue needs to be adequately addressed by the Central Government.