Introduction: The History
From the pre-independence era, and over the years, various types of indirect taxes were implemented in the states of India. The introduction of a gamut of taxes gave rise to increasing burden on the taxpayers as well as the Indian government with various compliances, administration and lack of uniformity and transparency. The lengthy, expensive and cumbersome affair to comprehend the array of indirect taxes that had to be complied with, often discouraged businesses and most importantly compliance.
In 2000, as a welcome step, the Indian government embarked on a journey to address these issues by introducing an efficient and robust valued added tax system. To attain this objective a task force viz. the Kelkar Task Force was formed to recommend an efficient design and manner of implementing the Goods and Services Tax (GST) regime in the country. Post deliberations for more than a decade, the Indian Government finally took a reformative step in 2017 by introducing the GST Act in the Indian indirect tax regime. This extensive indirect tax regime replaced the historic taxes prevailing at that time, aiming to unify the indirect tax system in the country.
The first recommendation of the Kelkar Task Force as per its report in 2009 was: GST should be a dual levy imposed concurrently by the Centre and the States, but independently to promote cooperative federalism.
This paved the way to the inception of the following category of GST taxes:
(i) Central Goods and Services Tax (CGST);
(ii) State Goods and Services Tax (SGST)/ Union Territory Goods and Services Tax (UTGST); and
(iii) Integrated Goods and Services Tax (IGST).
Comprehending GST: A Snapshot
Before diving into the intricacies of these primary taxes, let us understand the fundamental concepts of GST. GST characterises a dual nature of value added tax and consumption/ destination-based tax. Let’s understand the concepts of (a) value added tax; and (b) consumption/ destination-based tax in a simpler manner.
Value added tax
GST is attracted at each stage of value addition in the shelf life of goods and services i.e. starting from manufacture until consumption.
Consumption/ destination-based
The ultimate liability of GST falls on the consumer as one of the deciding factor of the applicability of GST is the place of consumption/ destination (denoted as ‘place of supply’ in the regime) of the subject goods and/ or services.
One of the objectives set out by the Government was eliminate the cascading effect of the indirect tax regime of India in order to promote transparency, efficiency, and ease of doing business. To attain this objective, One of the recommendations of the Kelkar committee recommendations, was subsuming the erstwhile indirect taxes in existence under one simplified tax structure.
As a result, the following Central and State taxes previously imposed by the Government of India were subsumed under GST, with the exceptions as mentioned below.
GST is not levied on Petrol (Gasoline), Diesel, Natural Gas, Aviation Turbine Fuel (ATF), Liquefied Petroleum Gas (LPG) for domestic use, until notified by GST Council.
Let us now explore the differences and applications of these primary taxes.
CGST: Central Goods and Services Tax - Definition and Scope
The Central Government of India levies and collects CGST on the occurrence of intra-state supplies of goods and services.
Article 279A of the Constitution empowers the President to establish the Goods and Services Tax Council (GST Council), a joint forum of the Central and State governments.
SGST: State Goods and Services Tax/ Union Territory Goods and Services Tax - Definition and Scope
The State/ UT Government of India levies and collects SGST/ UTGST on the occurrence on intra-state supplies of goods and services.
IGST: Integrated Goods and Services Tax: Definition and Scope
The Central Government of India levies and collects IGST on the occurrence of inter-state supplies of goods and services.
Conclusion
The phased switch-over from erstwhile indirect taxes to a more unified approach under the new GST regime, led to a complete wash-off of the cascading effects of taxes levied by State and Central Government of India. GST has brought in ease, transparency and efficiency in running business, coupled with efficient tax administration paving way to encouraging adherence to compliances.
In order to gain confidence for business operations in India, it is essential for one to understand the three main components of the Indian GST regime i.e. CGST, SGST/ UTGST and IGST, the differences, application and compliance requirements.
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