GST is not simply VAT plus service tax - First Discussion paper – It's all win-win?
“GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. However, for this GST to be introduced at the State level, it is essential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with the Centre.”, says the First Discussion Paper On Goods and Services Tax In India, released yesterday.
A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for
(a) additional power of levy of taxation of services for the States,
(b) system of comprehensive set-off relief, including set-off for cascading burden of CENVAT and service taxes,
(c) subsuming of several taxes in the GST and
(d) removal of burden of CST. Because of the removal of cascading effect, the burden of tax under GST on goods will, in general, fall.
The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and consumers through a more comprehensive and wider coverage of input tax set-off and service tax setoff, subsuming of several taxes in the GST and phasing out of CST. With the GST being properly formulated by appropriate calibration of rates and adequate compensation where necessary, there may also be revenue/resource gain for both the Centre and the States, primarily through widening of tax base and possibility of a significant improvement in tax-compliance. In other words, the GST may usher in the possibility of a collective gain for industry, trade, agriculture and common consumers as well as for the Central Government and the State Governments. The GST may, indeed, lead to the possibility of collectively positive-sum game.