The present indirect tax regime is complex and entails multiple taxes and duties. Further, there is a significant cascading effect of taxes on account of various restrictions on cross utilization of credit of one tax against another. In addition to this, multiplicity of returns and compliances at State level, administrative costs, waybills requirement for inter-state movement of goods, add to the procedural compliances to be followed by the assesses.
Introduction of a GST to replace the existing multiple tax structures of Centre and State taxes are not only desirable but imperative in the emerging economic environment. The Goods and Services Tax (GST) is a destination-based value added tax, levied at all points in the supply chain with credit allowed for tax paid on purchases used in making the supply. It would apply to both goods and services in a comprehensive manner with exemptions restricted to minimum.
The dual GST which would be implemented in India will subsume many consumption based taxes. At central level, Central excise duty, Additional excise duty, Service tax, Countervailing duty (CVD) and Special Additional Duty (SAD) and at State level, VAT/Sales tax, Octroi and Entry Tax, Purchase tax, Luxury tax, Entertainment tax and taxes on lottery, betting and gambling would be subsumed.
A 4-tire GST tax structure of 5, 12, 18 and 28 percent, with lower rates for essential items and the highest for luxury and de-merits goods that would also attact an additional cess, was decided by the GST Council. By removing cascading effect, layers of taxes and simplifying structure, GST will effectively mean that the tax paid by the final consumer will come down in most cases. In case of services it is likely expected to have a flat rate of 18% including cesses.
Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utililzation of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model.
The spread of Value Added Tax (VAT) and Goods and Services Tax (GST) has shown an increasing trend over the last two decades. Most of the current experts and international authorities agree that out of 194 countries in existence over 160 countries have implemented VAT/GST. Most of these countries have a unified GST system barring countries like Brazil and Canada, which follow a dual system wherein GST is levied by both federal and state or provincial governments. France is the first country in the world, which has implemented GST in 1954. Latest, GST was implemented in Malaysia in April 2015.Rate of GST ranges between 15-20% generally (may differ to higher/lower side in few countries).
The following countries are working towards implementing GST/VAT system Gulf Cooperation Council (Bahrain, Kuwait, Qatar, Saudi Arabia, Oman and the United Arab Emirates) across the UAE on January 1 2018.