An analysis of inter jurisdictional issues involved in the implementation of goods and services tax in India

Abstract

Goods and Services Tax is value added tax (VAT) levied on the consumption of goods and services. It is an indirect tax on the value addition at each stage of supply of goods or services up to final consumption. In India, Union government levies and collects CENVAT (Central Value Added Tax) on manufacture of specified goods and Service Tax on provision of taxable services. At state level, VAT replaced State Sales Tax from 2004 in phased manner. At present, there is 2% CST (Central Sales Tax) levied by Union government and collected and retained by originating states on inter-state sales. In addition to the above, various indirect taxes are levied by the Union government or State governments such as cess, entry tax, entertainment tax, purchase tax, etc. The present system of domestic indirect taxation, due to many reasons like cascading, exemptions, multiplicity of taxes and rates, interferes with the free play of the market forces and competition, causes economic distortions, and entails high costs of compliance and administration. In an effort to have smart tax administration, indirect tax system in India has been undergoing paradigm changes. It has been accepted that a comprehensive Value Added Tax at both national level and at state level could provide a solution to most of the ills of the present system. If levied on a comprehensive base at a uniform rate, GST would help restore neutrality, simplify the laws, reduce litigation and provide elastic and stable source of revenue. Two of the most important challenges India faces, in its journey of implementing a comprehensive GST at national and sub national level, are the levy and collection of GST on interstate trades within India and input tax credit mechanism in respect of interstate trades. This paper analyses the inter-jurisdictional issues that are involved in GST implementation in India and examines the internationally available models and the efficacy of these models in addressing such inter-jurisdictional issues in the respective tax jurisdictions and how should these issues be resolved when GST is introduced in India.