GST as the Abbreviation suggests is a “GOODS AND SERVICES TAX”. To Understand GST we need to understand the current taxation of Goods and Services in India.
India has a Federal Setup. i.e the Union Government(Central Government) has some taxation powers and the States have some taxation powers. The Union Government(Central Government) imposes many Direct and Indirect Taxes. Direct Taxes are Taxes like Income Tax and Indirect Taxes are Taxes like Excise Duty(also known as CENVAT. It is a Tax on Goods Manufactured in the Country) , Service Tax(Tax Imposed on Services Rendered) , Customs Duty(Tax Imposed on Imported Goods). The State Governments impose Indirect Taxes like VAT (Value Added Tax, i.e a Tax on Sale of Goods), State Excise Duty on Liquor, Luxury Tax, Entertainment Tax.
In Theory(I repeat, In Theory) , GST would be a Tax that would bring All State and Central Indirect Taxes on Sale of Goods and Services into a Single Tax. But this is easier said than done. This is only in Theory. Because India being a Federal Setup wherein States impose VAT on Sale of Goods and the Centre imposes Excise Duty on Manufacture of Goods. So in theory GST would be a Tax that combines Excise Duty, Service Tax and State VAT into a Single Tax. But due to the Compulsions of India’s Federal Setup this is not possible.
Hence the Current Proposal is to introduce 2 Different GSTs. A CGST(Central GST) and a SGST(A State GST). The CGST would bring Excise Duty and Service Tax under its fold and the SGST would bring VAT under its scope. The SGST would also empower States to collect GST on Certain Services.
This is the Proposed Form of GST Legislation as discussed in the media. It requires lot of Legislations at State and Central Levels including Constitutional Amendments to put this into Action. Moreover it requires Political Will on part of our New Vibrant UPA Government in its Second Avatar. It is interesting to see whether this would be possible in 2010 or not ?
