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Introduction 

The Goods and Services Tax (GST) implementation in India is the most prominent reform in indirect taxation. Effectively enacted nationwide since July 1, 2017, it operates on the principle of destination-based consumption taxation. The administration of this tax framework falls under the purview of the Goods and Service Tax Council (GSTC). The council comprises the Union Finance Minister, the Minister of State (Revenue), and State Finance Ministers.

With the objective of establishing a uniform tax structure, the GSTC plays a crucial role in determining GST rates, exemptions, thresholds, and the incorporation of various taxes. An essential aspect of this tax overhaul is implementing dual GST in India. It decentralizes the authority to levy taxes concurrently between the Centre and States.

To gain a comprehensive understanding of this dualistic tax model and its distinctions from the Single GST system, explore the details in this article.

Understanding Single GST

In a single GST system, the central government levies and collects a single tax on the supply of goods and services. The revenue is then shared with the state governments according to a pre-determined formula.

This model is simpler to administer and avoids the cascading effect of multiple taxes, but it can also lead to a loss of fiscal autonomy for state governments.

Introduction to Dual GST

The dual GST model in India involves the implementation of two components of taxation: Central Goods and Service Tax (CGST) and State Goods and Service Tax (SGST). This model is designed to align with the federal nature of the country, where both the central and state governments can independently levy and collect taxes on a single transaction.

Under this system, the central and state governments have distinct responsibilities and administrative powers as outlined in the Indian Constitution’s division of powers statute. The dual GST model aims to adhere to the constitutional requirements of fiscal federalism.

There are two variations of the dual GST model:

  1. Concurrent 
  2. Non-concurrent

In the concurrent model, both the Centre and states levy taxes simultaneously but independently, based on the place of supply of goods and services. This approach was adopted to reduce the cascading effect of taxes in India. On the other hand, the non-concurrent model involves states charging and collecting tax on goods while the Centre manages the tax on services.

The choice between concurrent and non-concurrent models had constitutional implications, as the former required an amendment to the Indian Constitution, while the latter did not. The adoption of the concurrent model was driven by the government’s intention to minimize the cascading impact of taxes in the country.

Features of Dual GST

The following features collectively characterize the structure and functioning of the dual GST system in India.:

  • Dual Structure

GST consists of two components – Central GST levied by the central government and State GST collected by the state governments.

  • Applicability

Both CGST and SGST apply to all transactions involving goods and services.

  • Separate Accounts

CGST and SGST are paid to the respective accounts of the Central and State governments individually.

  • Treatment of CGST and SGST

CGST and SGST are treated individually, allowing taxes paid against CGST to be considered as Input Tax Credit (ITC).

  • Cross Utilization

Cross-utilization of ITC between CGST and SGST is not permitted, except for the inter-state supply of goods and services.

  • Credit Accumulation

Both the Central and State governments aim to avoid credit accumulation based on GST refunds, with exceptions for scenarios like exports, input tax at a higher rate than output tax, and purchase of capital goods.

  • Uniform Collection Procedure

There is a uniform procedure for the collection of both CGST and SGST, as prescribed in their respective legislation.

  • Composition Scheme

The composition or compounding scheme for GST has an upper ceiling and a floor tax rate concerning the gross annual turnover.

  • Periodic Returns

Taxpayers must submit periodic returns in a standard format to both the CGST and SGST authorities.

  • Taxpayer Identification Number

Each taxpayer is allotted a 14-15 digit PAN-linked taxpayer identification number.

Advantages of Dual GST

The following advantages collectively contribute to the effectiveness, efficiency, and fairness of the dual GST system in India:

  • Simplified Tax Structure

The dual GST model replaced previous systems, leading to a simpler tax structure. It eliminated the need for multiple taxes imposed by both the state and central governments, making the system more straightforward.

  • Reduction in Tax Burdens

The implementation of the dual GST model resulted in lower taxes for taxpayers. The previous practice of paying taxes on taxes was reduced, contributing to a lighter tax burden on businesses and individuals.

  • Effective Tax Rate

Dual GST allows for tax deductions, leading to a reduction in the overall payable tax. This situation benefits businesses and individuals, contributing to higher in-hand income.

  • Simplified Compliance

The dual GST model streamlined compliance by consolidating various taxes into a single tax. This simplification eliminated the complexities associated with earlier systems like VAT or service charges, reducing taxpayers’ compliance costs.

  • Increased Tax Collections

The dual GST model extends its coverage to e-commerce and the unorganized sector, broadening the tax base. This expansion has resulted in increased tax collections for the government, providing funds for infrastructure development.

  • Online Procedures

Dual GST introduced online processes for returns and registration, allowing individuals to complete these tasks from the comfort of their homes. This online accessibility simplifies the process and encourages more people to comply with tax requirements.

  • Uniform Method of Collection

The legislation governing Central GST and State GST provides a uniform method of tax collection for both regimes. This uniformity contributes to a more organized and standardized tax system.

  • Composition/Compounding Scheme

The dual GST model includes a composition/compounding scheme with a maximum yearly gross revenue limit and an applicable minimum tax rate. This scheme offers flexibility to businesses within certain revenue thresholds.

Disadvantages of Dual GST

There is absolutely nothing in the world without a downside, and the dual GST system is no exception, so here are a few of its disadvantages:

  • Initial Implementation Challenges

The implementation of the dual GST model faced technical glitches in the GSTN portal, and there was a lack of clarity on certain provisions of the law during the initial stages. During this time, the consumer perspective on dual GST was slightly negative.

  • Compliance Burden

The GST system increased the compliance burden for taxpayers, especially small and medium-sized businesses, as it requires filing multiple returns.

  • Impact on Inflation

The implementation of GST led to an increase in the prices of certain goods and services, contributing to inflation.

  • Increasing Business Costs

The transition to the dual GST model required businesses to adopt new practices, hire and train staff, and make operational changes, leading to increased overall business costs. Many firms also had to invest in upgrading their old tax software.

  •  Impact on Small and Medium Businesses

The reduction of excise duty limits from ₹1 crore to ₹20 lakh turnover affected small and medium businesses. While compliance schemes were introduced for their benefit, these businesses had to forgo input tax credits.

Moreover, the online shift, coupled with the hurried implementation of the dual GST model, put a strain on small and medium businesses. It led to increased costs associated with adopting the new system and complying with its requirements.

Impact on Various Sectors

Dual GST impact on businesses has been mixed, with both positive and negative consequences across different sectors. The long-term effects are still unfolding, and further adjustments and refinements to the system might be necessary to optimize its impact on the Indian economy.

Here are some major highlights:

SectorImpact
ManufacturingOverall positive impact with reduced supply chain costs and improved competitiveness. However, certain sub-sectors, like textiles, faced temporary challenges due to higher tax rates.
E-commerceExpanded by simplified logistics and streamlined tax procedures, leading to increased online sales and growth.
ServicesGenerally benefited from the simplified tax structure and increased formalization. However, some professional services faced higher tax burdens.
AgricultureChallenges due to exemptions and complexities in tax rates on agricultural inputs and outputs.
Real EstateInitial slump due to higher tax rates on under-construction properties, but stabilized over time.

Dual GST vs. Single GST

AspectDual GSTSingle GST
Tax StructureInvolves both CGST and SGST, allowing taxation at central and state levelsLevied at a single rate, reducing complexity and eliminating dual taxation
Tax RatesMay result in decreasing effective tax rates for many goodsImposed at a singular rate, guaranteeing consistency and streamlining tax computations.
Cascading EffectAims to reduce the cascading effects of the present taxation systemNo cascading effects, as it is a single tax system, preventing tax on tax
ComplianceSimplifies tax compliance by reducing transaction costs for taxpayersReduces compliance costs significantly, opening up resources for other pursuits
Tax CollectionAims for better compliance and a wider tax base, leading to increased tax collectionsEasier tax collection with a uniform method, promoting better compliance
Fiscal FederalismSuited for India’s federal structure, preserving fiscal autonomy for both the Centre and StatesMay upset fiscal federalism, impacting the fundamental cornerstone of India’s polity
Practicality in the Federal StatesPractical for a federal country like India, aligning with the diverse nature of statesExcept for Australia, unified GST systems are not common in federal states
Implementation EaseRelatively easy to attain given the current indirect taxation system in India.May be viewed as a transitional model, with compliance costs not significantly reduced
Business ImpactProvides a competitive atmosphere for companies on an international scale, reducing costsBusinesses comply with a single tax system, promoting stability and reducing compliance variations
Revenue ImpactPrevents a dent in the Centre’s revenue, ensuring revenue neutrality for the statesMay not be revenue-neutral for states, potentially impacting their fiscal position
Inter-State VariationDual GST may prevent unhealthy competition among states, ensuring symmetry in tax collectionSingle GST reduces inter-state variations, promoting stability in decision-making for businesses

Conclusion

While the dual GST system faced initial challenges and implications, its advantages cannot be overlooked. The model led to a simplified tax structure, reduced tax burdens, effective tax rates, and increased tax collections. Moreover, the online procedures introduced under the dual GST framework have made the process more accessible.

Looking ahead, it is evident that the effects of the dual GST system will continue to unfold over the years. As the country adjusts to this new tax regime, India’s smart decision to adopt the dual GST system is set to bring about positive changes in the economy. With GST firmly entrenched, its role in enhancing economic efficiency is likely to become even more pronounced in the future. So, no doubt, the dual GST system is here to stay, contributing to India’s economic growth and development.

Also Read: GST: Everything You Need To Know

Frequently Asked Questions

  • What is the Dual tax on GST?

Double GST collection, as per Section 9(4) of the CGST Act, 2017, occurs when both the supplier and recipient separately pay GST for the same transaction, with the recipient fulfilling GST obligations through the Reverse Charge Mechanism.

  • Which Countries Have Dual GST?

Dual GST operates in India, Canada, Brazil, and various other countries with separate central and state taxes.

  • Which Countries Have Single GST?

Countries with single GST include New Zealand, Singapore, Japan and Mexico.

  • What is the Difference Between CGST and SGST?

CGST is levied by the central government on intra-state transactions, while SGST is collected by the state government.

  • What is the Relation Between PAN and GST?

The GST Registration number, comprising 15 digits, is assigned based on the PAN and State of the applicant. The first two digits signify the State Code, while the subsequent 10 digits represent the PAN.

  • What is ITC in Business?

Input Tax Credit (ITC) refers to the GST paid by a taxable entity on the acquisition of goods and/or services intended for business use or future business utilization.

  • What are Dual GST Advantages and Disadvantages?

Dual GST, with simplified compliance and reduced tax burdens, offers advantages. However, challenges such as initial implementation issues and increased business costs are notable disadvantages.

  • Which Country is India’s Dual GST Model Based on?

India’s dual GST model draws inspiration from the Canadian dual GST model.

  • What is the Turnover Limit for the GST Compounding Scheme?

Those with an annual turnover of up to ₹1.5 crore (₹75 lakh for special category States) selling goods can opt for the GST composition scheme.

  • Can we claim CGST Against SGST?

Unused CGST credit, remaining after offsetting the CGST tax liability, cannot be applied to offset SGST. The surplus CGST credit will be carried forward to the subsequent tax period.

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Rinkle Dudhani Intern
Meet Rinkle Dudhani, a diligent law student on the path to earning a BBA LLB degree in June 2024. Armed with a solid academic background in company law, taxation laws, and finance fundamentals, Rinkle possesses a deep understanding of legal and financial concepts. As a seasoned content writer with over 3 years of experience, she has collaborated with prominent brands and consistently delivered high-quality content with a focus on thorough research.

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