Designing a destination-based GST becomes exceptionally complex in a country like India, where the power to tax domestic trade is bifurcated between the state and the centre. A conventional national GST can’t be implemented without the states losing their autonomy. Here comes into play the dual GST model, which signifies that GST would be levied by both the central and the state government on the supply. As per the constitution, the taxing power currently is split between the centre and the state. In the case of specific transactions, the ability to tax is given to the centre and while in other cases, the emphasis is given to the state. Considering the dual power to tax a transaction under GST, the structure is called the DUAL model of GST. It is adopted as an implementable solution for the Indian scenario.
With this article, we will understand the core of the Dual GST model and various significant aspects of the same.
Dual GST Model
Because of the federal structure of the country, India has adopted a dual GST model. States and centre parallelly levy GST on the taxable supply of goods and services within a union territory or state. Hence, tax is imposed simultaneously by the State and Centre. The States/UT levies GST is called SGST or UGST, and that levied by the Centre on intrastate supply is called the CGST.
Integrated GST, referred to as IGST, is charged and administered by the Centre on every inter-state supply. IGST is the sum total of SGST/UTGST and CGST imposed by the centre on all inter-state supplies.
Need and Manner to Levy Dual GST
As we discussed, India, a federal country, has given both states and centre the powers to levy and collect taxes through apt legislation. Both levels have distinct responsibilities to perform according to the bifurcation of the power prescribed in the Indian Constitution for which they need to raise resources. Hence, a dual GST has been implemented across the nation as an ideal model complying with the constitutional requirements of the country.
The State GST and the Centre GST are levied parallelly on every transaction of supply of goods and services besides:
- The goods which are outside the purview of GST
- Exempted goods and services
- The transactions are below the prescribed threshold limits.
Moreover, both the taxes are levied on the same value or price (excluding tax value), unlike state VAT, which was charged on the value of the goods, including CENVAT.
Legal Framework and Administration
There is single legislation – the CGST Act 2017 for levying CGST. Similarly, UTs without state legislations have enacted the UTGST Act 2017. States and UTs, with their legislation, have enacted their own GST legislation for levying SGST.
The essential features of the law, such as the definition of the taxable event, taxable person, chargeability, classification, valuation, remain uniform in all SGST legislation despite multiple SGST rulings. This is necessary to preserve the core and essence of dual GST. Respective States charge and administer UTGST or SGST while Centre administers and charges CGST and IGST.
Why is Dual Model GST Better?
- Transparent and Simple Tax:
Dual GST is the best solution for India as it decreases the number of taxes at the state and centre levels. This is also convenient and feasible to implement and create accountability for.
- Decreasing tax rate:
The dual GST model results in a decrease in the effective tax rates for many goods and services.
- Simplified compliance:
By reducing the taxpayer’s transaction cost, dual GST brings about simplified tax compliance.
- Removal of cascading effect:
The implementation of the Dual model GST has reduced the cascading effects of the previous indirect tax regime.
- Complement federal countries like India:
Dual Model GST complements the structure of India to ensure unity through diversity. Single point GST is neither practical administratively nor desirable economically because it means sales tax, central excise duty, and service tax will be merged to be collected as a single tax.
- Good balance:
The dual GST model strikes an ideal balance between the need for fiscal autonomy and harmonisation of states and the Centre. Both levels of government can apply taxes at various points in the supply chain.
- More workable and efficient:
Unhealthy competition among states could use tax structure to attract industries if a single GST was implemented. The dual model is more efficient and workable, and a complete withdrawal of Centre from State taxation could impair the ability of the latter to collect revenue symmetrically.