GST System

There are three recognized systems for GST worldwide -

(a) Invoice System
(b) Payment System
(c) Hybrid System .....

How GST Will Work

The idea of Goods and Services Tax (GST) also known as Value Added Tax (VAT) is a tax on each financial contribute in the distribution chain. The taxable .....

GST Models

There exist various models of GST. Each model has their own advantages and disadvantages .....

Exempted Goods and Services

Some particular goods and services may be marked as exempted goods and services and the input credit should not be claimed on the .....

Tax Invoice

Tax invoice is the most vital & basic document in the GST. A dealer registered under GST can issue a tax invoice and .....

GST Models

There exist various models of GST. Each model has their own advantages and disadvantages.

Australian Model
In Australia GST is a federal tax, collected by the Centre and distributed to the states. But India is a diverse country and it is not possible that states may permit the Centre to gather all the taxes while they become just spending institutions.

Canadian Model
The GST in Canada is dual between the Centre and the states and has three varieties: (i) Federal GST and provincial retail sales taxes (PST) managed separately - followed by the largest majority; (ii) Joint federal and provincial VATs administered federally (Harmonious Sales Tax - HST); and (iii) Separate federal and provincial VAT administered provincially (QST) - only for Quebec as it is like a breakaway province.

The first variety is fundamentally the Canadian model, which is similar (though not the same) to the existing situation in India.

Kelkar-Shah Model
This model of a unified GST, is based on a grand bargain to merge central excise, service tax and state VAT into one common base. Two different rates of tax are to be levied by the Centre and the states. The collection may be by the Centre. This is like the HST model in Canada;

Bagchi-Poddar Model
This model, just like Kelker-Shahs, envisages a combination of central excise, service tax and VAT to make it a common base of GST to be levied both by the Centre and the states separately. This means that the Central Excise Act 1944 may be abolished and the goods tax may be only on the sale of goods. It may merge in it the service tax.

To put this in legal language, the taxable event for the GST may be the act of sale of goods and services. The difference between the Bagchi-Poddar and Kelker-Shah models is that in the former, the collection is at two levels, by the Centre and the states, while in the latter the collection is only by the Centre. So while the Kelkar-Shah model is like the Canadian HST, the Bagchi-Poddar one is like the Quebec model. Although the model says that it is based on the Quebec model, it is actually not fully so as this model envisages collection both by the Centre as well as the states, whereas the Quebec model envisages collection only by the state of Quebec.

The Bagchi-Poddar model also clearly envisages that a Constitutional amendment is necessary to bring the taxing powers on goods and services under the concurrent list and to abolish the present division of taxing powers between the Centre and the states.

The Practical Model
The same result with no upheaval/without upsetting the present setup can be achieved by a dual VAT or parallel GST at the central as well as the state levels. At the central level we can have, as we have now, a combination of Cenvat and Service Tax. At the state level we can have VAT alone without Service Tax. There is no need to combine Cenvat and VAT which envisages the complete abolition of Central Excise Act, which gives the power to the Centre to charge tax on manufacture. At the Centre the merging of Cenvat and Service Tax has been already done to a large extent by allowing interchangeability of input credit for both goods and services. The rate of tax can be made 14 per cent for both goods and services in the next Budget or the one after that. At the state level, VAT can be perfected by abolishing CST and allowing inter-changeability of input credit between states. This will work administratively as well as revenue-wise.