Currently, in India, various
transaction taxes are levied
at various stages in the value chain and the taxable events for
these levies are varied. Further, different taxes are levied on transactions
involving goods and services. To illustrate, customs duty is levied on
import, excise duty is levied on manufacture, sales tax/Value Added
Tax (VAT) is levied on sales, service tax is levied on rendering of taxable
services, and so on.
This system of taxation is found to be fraught with the following key
disadvantages: (i) Complexity—resulting in difficulty for taxpayers to
comply with the laws, litigation, etc.; and (ii) Credit
restriction—considering that the transaction taxes are
levied by different bodies, seamless credit is not available, resulting in
cascading effect, higher prices, etc.
To overcome the above and to align with the global practice of having
an integrated system of taxing goods and services, a comprehensive system
of Goods and Service Tax (GST) is proposed to be implemented in
India. GST is being heralded as the most radical shift in the taxation policy
of India and has been welcomed by various key stakeholders. A symbolic
first milestone in this regard was recently accomplished when a discussion
paper was issued by the Empowered Committee of State Finance
Ministers on November 10, 2009. Based on the discussion paper and
governmental communiqués, an overview of
the proposed GST system is presented here.
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