by GST or Goods and Services Tax was implemented in India on July 1, 2017, with the objective of creating a unified and simplified tax structure across the country. The GST replaced a complex network of indirect taxes levied by the central and state governments, such as VAT, excise duty, service tax, and others. The implementation of GST in India has two models; the single GST model and the dual GST model.
Single GST Model:
Under the single GST model, there is only one GST levied on all goods and services in the country. The single GST model is used by countries such as Canada, New Zealand, and Australia.
Advantages of Single GST Model:
- Simplification: A single GST eliminates the need for multiple taxes such as VAT, excise duty, and others, thereby simplifying the tax structure and reducing the compliance burden on taxpayers.
- Transparency: A single GST reduces the scope for tax evasion, as there is only one tax to be paid and accounted for.
- Ease of Administration: A single GST is easier to administer and enforce compared to multiple taxes, reducing the cost and burden of tax administration.
Disadvantages of Single GST Model:
- Unequal distribution of revenue: In a single GST model, the revenue generated by the tax is collected by the central government and then distributed to the states. This can lead to an unequal distribution of revenue, with some states receiving less than what they contribute.
- Centralization of Power: A single GST model gives the central government more power, reducing the autonomy of state governments in deciding on tax rates.
Dual GST Model:
The dual GST model is the one adopted by India, where both the central and state governments levy GST on goods and services. Under the dual GST model, GST is divided into two components – Central GST (CGST) and State GST (SGST).
The CGST is levied by the central government on intra-state supplies of goods and services, while the SGST is levied by the state government on the same. In case of inter-state supplies, Integrated GST (IGST) is levied, which is a combination of CGST and SGST.
Advantages of Dual GST Model:
- Revenue Distribution: The dual GST model provides for the distribution of revenue between the central and state governments, ensuring a fair distribution of revenue.
- Autonomy: The dual GST model gives the state governments the power to decide on tax rates, reducing the centralization of power.
Disadvantages of Dual GST Model:
- Complexity: The dual GST model is more complex compared to the single GST model, as it involves multiple taxes and rates.
- Compliance Burden: The dual GST model increases the compliance burden on taxpayers, as they have to file multiple returns and maintain separate accounts for CGST, SGST, and IGST.
Example:
Suppose a manufacturer in Maharashtra supplies goods worth Rs. 1 lakh to a trader in Gujarat. Under the dual GST model, the manufacturer will charge CGST and SGST on the transaction.
If the GST rate applicable on the goods is 18%, then the manufacturer will charge CGST at the rate of 9% and SGST at the rate of 9%. The total tax payable by the trader will be Rs. 18,000, which will be divided equally between the central and state governments.
In case the manufacturer supplies the goods to a trader in Tamil Nadu, the transaction will be considered an inter-state supply, and IGST will be applicable. The manufacturer will charge IGST at the rate of 18% on the transaction, and the total tax payable by the trader will be Rs. 18,000, which will be collected by the central government and distributed to the state of Tamil Nadu.
Note: Revenue model subject to change per laws amended time to time.
