Present Tax Structure in India
Present structure of indirect taxation in India can be divided into Central levies & State levies.
Central levies mainly comprise of Excise Duty, Custom Duty & Service Tax. State levies mainly comprise of VAT, CST, State Excise on alcohol and other levies like Entry Tax, Entertainment Tax, Luxury Tax, etc.
Power to levy said duties flows to the Government from the Constitution of India. Excise Duty is levied on manufacture of goods vide entry no. 84 of List – I of Schedule VII. Custom Duty is levied on imports & exports of goods vide entry no. 83 of List – I of Schedule – VII. Service tax is levied on provision of service under Residuary Entry no. 97 of List I of Schedule VII. VAT & CST is levied on transaction of sale under entry no. 54 of List II & 92A of List I respectively.
Current system of multiple levies distributed between Center & States results into cascading (i.e. tax on tax) effect. For instance, no credit of State VAT is allowed against Central Tax. CST credit paid in the originating State is also not allowed in the receiving State. This results in the increase in the overall burden of tax in the hands of end customer and creates distortion in the market.
Proposed Tax Structure under GST
GST is a destination-based tax that will replace the current Central taxes and duties such as Excise Duty, Service Tax, Counter Vailing Duty (CVD), Special Additional Duty of Customs (SAD), Central Sales Tax, central charges and cesses and local state taxes, i.e., Value Added Tax (VAT), Octroi, Entry Tax, Purchase Tax, Luxury Tax, Taxes on lottery, betting and gambling, state cesses and surcharges and Entertainment tax (other than the tax levied by the local bodies).
It will be a dual levy with State/Union territory GST and Central GST. Moreover, inter–state supplies would attract an Integrated GST, which would be the total of CGST and SGST/UTGST.
As per the present law, GST has been extended to whole of India except for the state of Jammu and Kashmir.
Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural gas will be brought under the ambit of GST from such date as may be notified by the Government on recommendation of the Council. Alcohol for human consumption has been kept outside the purview of GST.
Tobacco and tobacco products will be subject to GST. In addition, the Centre would have the power to levy Central Excise duty on these products
GST will be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer